Metro Store in China (Image credit : Metro Holdings)

JAKARTA (TheInsiderStories)—Indonesian government should pay attention to the risk of capital outflow to China after the 234 Chinese listed companies will be added to the world’s top index Morgan Stanley Capital International (MSCI) Inc.

The MSCI has long refused to include A Class Chinese listed companies on the Shanghai Stock Exchange and Shenzhen stock exchange, but finally, MSCI announced the final list of the Chinese companies to be included in this benchmark equity and will effectively be listed on June 1, 2018.

The list includes several heavyweights such as the Commercial Bank of China, China Construction Bank, China’s biggest oil producer PetroChina, and e-commerce Alibaba.

A total of 234 shares will weigh about 0.39 per cent of MSCI Emerging Market Index. The increase means less weighting of Indonesian companies stocks in the MSCI, with PT XL Axiata Tbk (EXCL) had been kicked and five other companies in the MSCI World Small Cap Index namely PT Totalindo Eka Persada Rbk (TOPS), PT Intiland Development Tbk (DILD), PT Indofarma Tbk (INAF), PT Kawasan Industri Jababeka Tbk (KIJA), dan PT Wijaya Karya Beton (WTON). As a replacement, MSCI included PT Indah Kiat Pulp Tbk (INKP) to the index.

The inclusion of Chinese companies in the MSCI index has been eagerly anticipated by investors and is expected to increase the foreign capital to the Chinese market from the current position of 2 per cent. Furthermore, the inclusion could lead the foreign investors using the MSCI as a benchmark to move their portfolio to China. JP Morgan calculated a potential of US$6.6 billion in passive inflows to enter MSCI China companies in the near future.

Moreover, China’s current fundamental economy remains attractive for investors. China recorded 6.8 per cent in economic growth in the first quarter of 2018, above the target of 6.7 per cent. Last year, China booked 6.9 per cent in economic growth, surpassing the target of 6.5 per cent.

The Indonesian government should pay attention to the risk of capital outflow to China, moreover, the Indonesian capital market already riddled by the concerns over the Federal Reserve rate hike.

In the first trading session on Wednesday (16/05), foreign investors net sold stocks worth Rp547.74 billion, according to the PT Indosurya Bersinar Sekuritas research. The Jakarta Composite Index plunged 1.34 per cent or 78.11 points at the level of 5,760 during the first trading session. The total market turnover in the first trading session was Rp4.58 trillion.

JCI closed at 5,838.12, down by 109.04 points or 1.8 per cent, yesterday, extending Monday’s drop of 0.16 per cent or 9.68 points.