MSCI will remove some Chinese shares from indexes as markets sink

(Bloomberg) — MSCI Inc. is removing dozens of Chinese companies from its global benchmarks after a market crisis that has wiped trillions of dollars of value from U.S. stocks.

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The index provider removes 66 companies from its MSCI China Index in its latest quarterly review, the highest number in at least two years. The changes, which will come into effect from the close on February 29, will also apply to the MSCI All Country World Index. Stocks to be delisted include property developers Gemdale Corp. and Greentown China Holdings Ltd., as well as China Southern Airlines Co. and Ping An Healthcare and Technology Co.

The removals increase risks for the already beaten-down Chinese market, as index funds will have to remove these stocks from their portfolios. There are at least $5.9 billion in exchange-traded funds tracking the MSCI China Index, the largest of which is the U.S.-listed iShares MSCI China ETF, according to data compiled by Bloomberg.

China’s weighting in global portfolios has fallen due to concerns about its struggling real estate sector and weak consumption, and as alternatives such as India become increasingly prominent. In a sign of the deep pessimism about Chinese and Hong Kong stock markets, stock rallies fueled by a slew of policy support measures over the past week faded within a few sessions ahead of the Lunar New Year holidays.

“It highlights the issue of negative flows for Chinese equities as investors reduce their exposure to the country, largely due to recent weak fundamentals, but also due to fears of continued financial instability, regulatory uncertainty and – especially – country risks.” Kyle Rodda, senior market analyst at Capital.Com…

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