It's Decision Time for MSCI as Global Stock Rally Bypasses China

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Jing Ulrich, vice-chairwoman of Asia Pacific at JPMorgan Chase& Co.

China stocks barely moved on Tuesday morning as investors awaited a decision by USA index provider MSCI on whether to add mainland shares to its Emerging Markets Index. "Given that their profits are expected to see exponential growth in coming years, it is premature to say the rally in hi-tech shares is over", said Mutsumi Kagawa, chief global strategist at Rakuten Securities.U.S. financial shares also gained as U.S. debt yields rose after New York Fed President William Dudley, a close ally of Fed Chair Janet Yellen, said U.S. inflation should rebound alongside wages as the labor market continues to improve.

Northbound trading under the mainland-Hong Kong stock connect schemes has averaged a net inflow of 1.21 billion yuan ($177.15 million) per day in the last two weeks, more than the 938 million yuan in the first five months of the year, as investors have built in high expectations of the inclusion.

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MSCI has previously declined to include China in the EMI three times amid investor complaints about curbs on repatriating capital from China and concerns over the country's large number of suspended stocks. One can buy stocks of American companies doing a lot of business in China (think Yum Brands & its KFC business), or buy shares of Chinese companies trading on USA stock exchanges (and thus, subject to American security laws and regulations).

Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission.

The MSCI Emerging Markets Index has performed well so far in 2017. "Overall, it would be a positive development for the smooth functioning of the market".

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She said there are a range of blue chip stocks in the A-share market, representing well-established business models with strong pricing power and robust cash flows in Shanghai and Shenzhen bourses. Signs of fewer new listings in the coming months also supported the market.

"So far, this market is dominated by retail investors, who are influenced by short-term swings in sentiment as well as willing to overpay for growth levels that are not sustainable over an economic cycle", Ning added.

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