Will China finally turn respectable?

Index provider MSCI is about to announce whether it will admit China’s domestic stockmarket to its emerging-market indices. Entry would be “a small but symbolic move”, says Marion Dakers in The Sunday Telegraph.

The MSCI isn’t contemplating putting the entire A-shares market in its indices yet; for now, it is concentrating on 5% of it. China’s overall weighting would thereby only rise from 25.9% to 27.3% in the Emerging Markets index (Hong Kong and US Chinese company listings already provide some access). Another $21bn or so of foreign money would then come into the country, according to Axa Investments.

Capital controls, ownership restrictions and the regulators’ ham-fisted performance amid last summer’s market meltdown all suggest that the A-shares market is still more of a local casino than a fully fledged international stockmarket. But the government has been making an effort to deregulate and reduce interference. If MSCI gives China a green light, it would provide confirmation that “this is an important market… that is gradually liberalising”, says UBS.

Zinc bucks the metals trend

This year’s top-performing industrial metal is zinc, up an impressive 25% to a one-year high of $2,000 an ounce. Used for rustproofing steel, zinc is “a bullish exception in the metals space”, as Goldman Sachs puts it. Last year’s 26% slump in prices paved the way for reduction in mine output. Zinc concentrate production is likely to decline by 8% this year, according to one estimate.

Stockpiles in warehouses tracked by the London Metals Exchange have slid by 18% this year to a seven-year low. The global supply deficit is set to triple by 2017. Meanwhile, China’s infrastructure spending is accelerating at its fastest pace since 2009, adds Goldman; Chinese infrastructure and property markets are key sources of demand. Zinc has further to go.

Merryn

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