In the early morning of May 12, Beijing time, MSCI released the results of its semi-annual index review for May 2021 for all its indices, including the MSCI China Index. Although this is a semi-annual audit, involving a large number of stock adjustments, the corresponding impact is also more extensive. The above adjustments were implemented on May 27 and came into effect on the 28th. CICC combined with the results of the adjustment comments and analysis as follows, for investors' reference.

MSCI China semi-annual adjustment

• Change of constituent stocks: 60 new constituent stocks and 21 eliminated at the same time

21 overseas Chinese stocks are included, and the order of weight after inclusion is Poly Xiexin Energy, Hengteng Network, Ganfeng Lithium Industry, Zhaoyan Network, 360 DIGITECH, Qiming Medical-B, Minmetals Resources, China Resources Vientiane Life, Kangfang Bio-B, Tianjing Bio, Fuchuang Services and so on.

A shares newly included 39, according to the included weight order is Kanglong Huacheng, Baofeng Energy, China Shipbuilding, Huafeng Chemical, Satellite Petrochemical, Yunnan Aluminum Co., Ltd., Oriental Shenghong, Desai Xiwei, Kangxinuo-U, Pengding Holdings, Qibin Group and Superstar Technology and so on.

At the same time, 21 constituent stocks have been removed from this adjustment, namely Hong Kong shares of Aikang Medical, New Oriental online, and A shares of Inner Mongolia first Machine, Shanghai Electric Power, Shenzhen Airport, Jichuan Pharmaceutical, Taiji Industry, Sanquan Foods, Guangxun Technology, Kanghong Pharmaceutical and National Pharmaceutical, etc.

As a result, the adjusted constituent stocks have risen from the current 709 to 748 (including 490 A shares with a weight of 12.6%, 2 B shares with a weight of 0.1%, 210 Hong Kong stocks with a weight of 57.1%, and 46 Chinese stocks with a weight of 30.2%).

• Other changes: circulation factors and changes in the number of shares

In addition to the adjustment of constituent shares, MSCI has also adjusted the free circulation factors of 90 companies (FIF,Foreign Inclusion Factor, such as shells with varying weights, ideal cars, China Feihe, etc.), as well as the number of included shares of 171companies, which will also change the weight of constituent stocks in the index.

Potential impact: weight and Capital flow

• Weight change: focus on the largest increase in the weight of Shell, Chinese Flying Crane, ideal car and Poly Xiexin Energy.

Judging from the range of changes in absolute weight, we calculate that affected by this adjustment, the weights of Shell (KE), China Feihe, ideal Automobile (LI AUTO), Poly Xiexin Energy, Tencent Music, Xiaopeng Automobile (XPENG), pinduoduo, Si Moore International, Hengteng Network, Ganfeng Lithium Industry have increased the most, ranging from 0.3% to 0.07%. Among them, the largest increase in the weight of A shares is the Beijing-Shanghai high-speed railway and so on.

On the contrary, Tencent Holdings, Alibaba, Meituan-W, Industrial and Commercial Bank of China, NetEase, Construction Bank, JD.com, Baidu, Xiaomi Group-W, Weilai and other dilution effects have the largest decline in the weight in the index.

• Potential impact: pay attention to the potential positive impact on Jiutai Bonda Energy, Financial one account, Baolong Real Estate, and the negative impact on Bohai Bank, Shenzhen Holdings, far East Hongxin, etc.

From the point of view of trading and position adjustment, we also need to combine the average daily turnover of individual stocks to judge its specific impact.Based on the assumption that passive funds with the current size of $149.4 billion (equivalent to about 5% of the current MSCI China Index's overall market capitalization of ~ 3 trillion US dollars) track the MSCI China Index, and combined with the average daily turnover of individual stocks in the past 20 days, we estimate

1) among the passive capital inflows required, Jiutai Bonda Energy, Financial one account, Baolong Real Estate, Sany International, Burning Stone Medicine, China Resources Vientiane Life, Qiming Medical-B, Shimao Service, Financial Chuangchuang Service, China Feihe, Minmetals Resources, Kangfang Biological-B, etc., take the longest time, with an average of more than 4 days. China General account takes the longest trading time among A-shares, about 1.7 days.

2) among the passive outflows of transactions required, Bohai Bank, Shenzhen Holdings, far East Hongxin, Wharf Group, Guangfa Securities, North Water Control Group, China Electric Power, Shisiyao Group, Chongqing Rural Commercial Bank, Aikang Medical, Zhengrong Real Estate, New Oriental online, etc., required the longest outflow of transaction funds, which takes more than 2 days. For details, please see the chart below. The outflow time required for the transaction of Zhonggujinggong B and Lujiazui B in B shares is about 1.8 and 1.6 days.

Schedule: adjustment after closing on May 27th, effective on May 28th

In terms of capital flow, according to the historical experience of index adjustment, passive funds will usually adjust their positions on the last day, that is, May 27, in order to reduce the tracking error of the index as much as possible. as a result, we often see the "abnormal" magnification of the trading of stocks with large changes in weight, especially in the late trading. In contrast, active funds do not exist this constraint, you can choose the opportunity to choose the time of configuration.

In terms of stock price impact, after the announcement of the results but before the official implementation date, there will also be some arbitrage funds to distribute the corresponding stocks according to the official results, especially those unexpected results that have not been fully predicted by the market before.

However, on the official implementation date of the adjustment, although passive funds "must" adjust their positions according to weight changes, the actual changes in stock prices may not be consistent with the weight adjustment directions. on the contrary, it will be more affected by the contrast between arbitrage funds in advance and passive funds, and there is no lack of stock prices falling on the day of adjustment implementation.We recommend paying attention to the potential impact of some illiquid stocks, such as some B shares.

Chart: this adjustment of constituent stocks: 60 stocks are included; 21 stocks are excluded (based on Bloomberg consensus expectations)

Chart: stocks with a large increase in expected weights (based on Bloomberg consensus expectations)

Chart: stocks with a significant reduction in expected weights (based on Bloomberg consensus expectations)

Chart: stocks that are expected to take the longest time to trade passive capital inflows (based on Bloomberg consensus expectations)

Chart: stocks that are expected to take the longest time for passive capital outflows from transactions (based on Bloomberg consensus expectations)