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Jun 15, 2016

Asian Markets at Close Report, by MarketWatch on June 15, 2016: China Stocks Jump Despite MSCI Index Snub

marketwatch.com

Chao Deng 
 
China’s stock market handed a surprising twist to investors on Wednesday.

The main benchmarks of Shanghai and Shenzhen finished higher, as local fund managers shrugged off MSCI Inc.’s decision not to include mainland shares in its widely tracked indexes.
The Shanghai Composite Index SHCOMP, +1.58%  jumped 1.6% to 2,887.21, while the smaller Shenzhen Composite Index 399106, +3.12%  soared 3.1% to 1,889.87.
Over in Hong Kong, the Hang Seng Index HSI, +0.39%  had a choppy morning but managed to close up 0.4%.
In Japan, the Nikkei Stock Average NIK, +0.38% closed up 0.4% but investors continued to rush to haven assets, pushing Japanese government bond yields to fresh record lows. Elsewhere, Australia’s S&P/ASX 200 XJO, -1.08% was down 1%.
MSCI announced before Asian markets opened Wednesday that it would for a third time withhold mainland China A shares from its benchmarks, including the widely tracked MSCI Emerging Markets Index. About $1.5 trillion in assets follow this index, according to MSCI, and with some of that being from passively-managed funds, analysts had expected that billions of dollars would automatically enter China’s borders had MSCI said yes.
By closing that door for now, MSCI delivered a blow once again to China’s efforts to join international markets.
Still, the benchmark provider emphasized that China was getting closer to an inclusion, in a presentation with more details than in years past.
“Onshore traders [in China] are getting back to what they consider are popular stocks,” including small startup names, said Bill Bowler, Hong Kong-based equities trader at Forsyth Barr Asia Ltd., referring to the larger gains in the ChiNext Composite Index, which rose 0.3%. “There has been an overhang on the market from the anticipation of the MSCI decision, but now that it’s out of the way, traders can resume buying.”
Traders said that the market’s positive reaction proved that investors trading inside the mainland weren’t too disappointed and held lower expectations for an inclusion going into the day, compared with international investors.
The sell-side trading community had high hopes, with some predicting a 70% chance of inclusion, compared with fund managers whose expectations were more in a tossup, added Sean Taylor, head of emerging market equities at Deutsche Asset and Wealth Management. “At the end of the day, it’s a commercial decision by MSCI.”
Markets in the region have struggled this week amid worries over whether the U.K. will vote on June 23 to leave the European Union, with shares plunging Monday.
Read: Watch gold jump to $1,400 if U.K. votes to Brexit
The Nikkei Stock Average has lost 4% in three days as investors rushed to safety, leading the Japanese yen USDJPY, +0.16%  to strengthen. A stronger local currency hurts the competitiveness of Japanese exporters.
Investors are now waiting for announcements Thursday from the U.S. and Japanese central banks on interest-rate policy. The Fed is expected to sit pat, but there is speculation the Bank of Japan could surprise with more stimulus.
Read: Why Yellen may sound hawkish as she lays out Fed’s rate view
At the same time, investors worry that the BOJ’s hands are tied by a possible “Brexit,” or British exit from the EU. About eight in 10 market players expect the Bank of Japan will maintain its policy this week, partly to save its ammunition to fight a possible further strengthening of the yen in coming weeks, according to a survey by domestic wire service Quick.
Most of them say the dollar-yen pair will hold above ¥100 even if the BOJ does hold fire Thursday as expected, the poll results show. The Japanese yen was last down 0.3% to ¥106.29 against one U.S. dollar.
In Japan’s government bond market, the benchmark 10-year TMBMKJP-10Y, -13.37%  hit as low as minus 0.195%. Yields on the benchmark 20-year TMBMKJP-20Y, -12.32%  and 30-year TMBMKJP-30Y, -9.65%  bonds reached new lows of 0.135% and 0.215%, respectively.