MSCI Wei Zhen: Risk Management Tools for A-shares Running Stable in Epidemics Helps Segmentation
Original title: Exclusive | MSCI Wei Zhen: A-shares run smoothly during the epidemic, and rich risk management tools can help subsequent overseas investors actively evaluate A-shares as scheduled for opening.The large-scale suspension of trading in 2015 also reflects the continuous maturity of the market.
In the early days, a sudden new type of coronavirus pneumonia (hereinafter referred to as “new coronary pneumonia”) broke the calm of the global market.
Recently, Wei Zhen, research director of MSCI China, accepted an exclusive interview with First Financial Reporter.
He said that overseas investors generally made positive assessments on the opening of A-shares as scheduled, and their research team also found that even under the impact of the epidemic, the occurrence of A-shares such as large-scale suspensions in 2015 this time, which reflects the continuous marketmature.
”Investors in the global market performed exceptionally calm this time, and the market has continued to rebound recently. It is also based on the market conditions of previous outbreaks. Both SARS (February 2003), H1N1 (June 2009), and avian flu (2013March 31), Ebola (September 2014), MERS (May 2015), the impact of several epidemics on global market trends has not been so big . not one time the overall market fell more than 10%,Nor will it affect the inherent trend of the market, that is, the bear market will continue to bear market after the epidemic is over, and the bull market is still a bull market, which has little impact on the medium and long term.
Wei Zhen said, of course, each outbreak has its own characteristics and unique economic development background. It is not easy to compare the same kind, and it is not necessarily appropriate to compare SARS with the similar kind of new pneumonia.
It is obvious that MSCI also recently published a study on the impact of new coronary pneumonia on the global market (coronary virus epidemic: impact on the market), which mainly focuses on three aspects, including the impact of the epidemic on the global and Chinese economy,The global industry exposure to China ‘s revenue exposure and its market response are used to analyze the impact of the epidemic on the industry. Finally, the multi-asset model is used to conduct tail risk analysis, which is intended to provide an analytical framework for global investors.
Wei Zhen said that since the SARS period about 17 years ago, China’s current share of the global economy, according to World Bank statistics, China’s share of global trade rose from 5% in 2003 to 11 in 2018.%, While China’s share in the MSCI Emerging Market Index was 7 from 2003.
86% rose to 34.
3%, therefore, through the MSCI database to test the exposure of listed companies in various countries and industries to China’s revenue, it can be found that it has more than tripled since 2006.
In the future, public health, geopolitical shocks may happen from time to time, and MSCI research found that if the local and overseas markets have better liquidity futures markets, which will help disperse selling pressure in the spot market, Wei Zhen suggested that the A-share marketAppropriate and abundant risk hedging tools will also help MSCI to further expand the division of A shares in the future.
“The experience of the Japanese and South Korean markets shows that the reorganization of well-futured futures markets causes liquidity problems during market fluctuations, especially in these countries, when the public safety emergency broke out, the futures market volume scale will not disrupt the market.
This also gives an inspiration to the Chinese market.
“” Risk management tools help investors form a price discovery mechanism outside the spot market, thereby avoiding trading pressure on the spot market during emergencies.
He pointed out that at present MSCI has not expanded its consulting plan to further expand A shares.
It is more important to encourage different types of participants to let them express different views. In fact, the continuous expansion of foreign institutional investors in the past two years has promoted the continuous maturity of A shares.
A shares are operating smoothly under the epidemic, and there is no large-scale suspension. Q: Before the opening of the A shares on February 3, there are many opinions that in order to avoid excessive impact on the market due to immunization, A shares should continue to expand and improve the city’s jurisdiction.
What do you think of A shares starting as scheduled?
What about overseas investors?
Wei Zhen: At present, risk management tools outside the Chinese spot market have not been fully developed. If the spot market is suddenly stopped, investors may have liquidity concerns, which is also foreseen by regulators.
The upcoming opening of the market is reflected in the Chinese regulators’ confidence in the conditions of the A-share market. The A-share market is not currently an irrational market. The opening as scheduled is also a positive guide and does not cause a burden on foreseeable liquidity risks.
More positive comments from overseas investors on the opening of A shares as scheduled.
The facts have also verified this. From the perspective of market impact, that is, the spread of the decline at the opening of the first day (February 3), and then the market continued to stabilize and the overall operation was relatively stable.
It is more pleasing that the recent suspension of A shares is very normal, without any large-scale suspension as in 2015. This is a very positive test, which reflects the confidence of the regulators and the further maturity of the market.
MSCI China returns (January 20-February 5, 2019).
Source: MSCI Q: Before the specific impact of the epidemic was clear, the overall performance of overseas markets was very rational. After a short-term change, the stock markets in Europe, America, and emerging markets also stabilized and rebounded.
How to look at this situation?
Is the market overly complacent?
Wei Zhen: The market is indeed rational.
We have also done research on the impact of previous outbreaks, including SARS (February 2003), H1N1 (June 2009), Avian Influenza (March 31, 2013), and Ebola (September 2014), MERS (May 2015), the impact of multiple epidemics on market trends was not so great.
Of course, in the short term, everyone will have some kind of event or have a major impact on life and health, but the impact on the market is not so great. There is no global market that has fallen by more than 10%, nor has it affected the market direction. Usually after the epidemic,How the market should go or how to go, the bear market continues to bear, the bull market is still a bull market, and has little impact on the medium and long term.
The market is smart, and reason naturally has reason.
Although earlier in the market there were doubts about the authenticity of the outbreak diagnosis data, overseas data show that the fatality rate of the outbreak is indeed low.
Under the ranking, the H1N1 epidemic that year caused nearly 300,000 deaths worldwide.
Of course, each epidemic situation is different, and the degree of impact on the economy is also different. It cannot be turned into an overly optimistic or pessimistic estimate in the short term, and it needs to be viewed in combination with actual conditions.
This is why overseas investors are not overreacting before the impact is determined.
For example, the 2009 epidemic happened during the economic recovery period in the United States, so the epidemic had little effect on the economy; SARS in 2003 also occurred during the rapid economic development period, so the impact was not significant.It would not be appropriate to simply compare the effects of this new coronary pneumonia with SARS.
Returns in the Asia-Pacific markets (excluding Japan) by sector (January 20-February 5, 2019) Chinese economy and stock market have a far greater global impact than during the SARS period. Q: MSCI ‘s recent research on epidemic prevention and control mainly seeks information
What does this mean for global portfolio investment?
Wei Zhen: The outbreak of the epidemic has attracted the attention of global investors, so our research also focuses on the impact of the epidemic on the economy, industry sectors, and global investment portfolios. It mainly compares the current situation with the SARS period.
The research mainly focuses on three aspects: First, the impact of the epidemic on economic aspects is introduced-the impact of new crown pneumonia on the economy and the market may be much greater than in 2003.
Because about 17 years ago, China now accounts for more than the world economy.
According to World Bank data, China’s share of global trade rose from 5% in 2003 to 11% in 2018, while China’s share in the MSCI Emerging Market Index increased from 7 in 2003.
86% rose to 34.
In the second aspect of the changes in China’s current and 2003 economic volume, the impact of the epidemic on the industry was also observed, and the factors of style were also looked at, but the impact of the epidemic on the industry sector was far greater than the factors.
For example, from January 20th to February 5th, 2020, aviation, shipping, consumers, services, media, and retail are the five largest decliners, while healthcare is the biggest winner. The differences in this category vary amongThe performance of the regions is quite consistent.
The analysis of the industry is closely related to the degree of income exposure. Using the MSCI database to test the income exposure of listed companies in various countries and industries in China, we can find that the income exposure has increased one-to-many since 2006.
Of course, the situation in different industries is also very different. Those companies that play a certain role in the global technology supply chain or sell consumer electronics products have a higher-than-average income exposure to China.
The above changes are closely related to the increase of China’s economic influence. For example, tourism and peripheral consumption are constantly expanding.
The income exposure of various countries and industries to China is rising. The third aspect focuses on tail risk analysis through the multi-asset model, that is, analyzing the impact of global investment portfolios under certain assumptions.
Of course, the results of certain stress tests assume hypotheses and become epidemic changes. Assumptions and results will change, but the main intention is to provide an analytical framework for global investors.
Question: Do you also think that the effects of new coronary pneumonia are directly compared with SARS, how do you view the situation of A shares in the SARS period and the current epidemic situation?
Wei Zhen: Starting from the baseline SARS period, the key industries affected by the epidemic accounted for the proportion of China’s GDP, and China’s current relationship with global companies is also closer. Global companies’ exposure to China’s income is relatively small.
In addition, during the SARS period, A-shares are estimated to be very high, almost more than twice what they are now, and PB was nearly three times. At present, the overall expectations of A-shares are biased.
Some studies also mentioned that before the outbreak of SARS, MSCI China estimated that it was about 9.
7 times, compared with 12 before the outbreak of new coronary pneumonia.
5 times, so the current market estimates are inaccurate, but it is also necessary to look at the comparisons. For example, in 2003, when Alibaba and Tencent were not yet listed, the two companies currently have a very large proportion in MSCI China.Big, this is like the 2003 FAANG (Facebook, Apple, Amazon, Netflix, Google) was not so strong at the time.
Therefore, it is not significant to directly compare the estimates.
But from the perspective of long-term time, it still has some significance.
For example, A-shares were estimated to be high in 2003, and Hong Kong stocks were undervalued. Therefore, after SARS continued to grow in 2003, A-shares fell.
Q: At present, the global industrial chain is deeply integrated, and China has contributed a large part of the “re-export trade”. The epidemic has affected the start of some enterprises, which has caused disturbances to the global automotive and consumer electronics industries.
If starting from the analysis methodology, a large amount of research focuses on the contribution of China’s intermediate exports to different countries, is the MSCI income exposure data more intuitive?
Wei Zhen: MSCI’s data is mainly based on the direct sales sources of global listed companies, that is, “income exposure” looks at the source, and directly analyzes the exposure of enterprises, industries, and countries.
The advantage is that although the impact of the industrial chain does exist, most of the direct impact comes from direct sales, and the intermediate impact of the industrial chain is difficult to accurately measure, but we have all the listed companies in the world to different countries at the same latitude.A comprehensive analysis of exposures can be consistent, more comparable, and easier to analyze in a global portfolio the likely economic impact of a country.
If it is analyzing the industry chain, then every company may need a model.
China should enrich its risk management tools and investor structureQ: What suggestions do you have for China to buffer the economic impact of the epidemic in some way?
Wei Zhen: MSCI does not provide advice on economic policies.
But from a personal point of view, considering that China’s current tertiary industry accounted for much higher than in 2003, the epidemic will inevitably bring some short-term pressure on the economy, which is determined by the economic structure.
Therefore, in addition to the macro easing policy, it is also necessary to provide targeted support to the economy, especially for small and medium-sized enterprises, and to provide fixed-point support to industries that are subject to short-term shocks and breakthroughs and are prone to large-scale unemployment.
Q: In the future, public health events and geopolitical conflicts will most likely occur more frequently. Therefore, for A shares, ensuring the stable operation of the market and enriching risk management tools are also necessary.
What does MSCI recommend?
Wei Zhen: Risk management tools in China’s A-share market are still insufficient.
We have also done related research. A more interesting phenomenon is that during the recent rounds of public safety incidents, in addition to the sometimes mentioned outbreaks mentioned above, it also includes the Japan earthquake (which caused short-term harm to nuclear radiation from various circles).The local market has a relatively liquid futures market. Despite the short-term pressure on the spot market and the volume of transactions, the volume of futures markets is accelerating.
This shows that with hedging tools, the selling pressure in the spot market will be distorted to some extent, and some will be transferred to the futures market.
This also gives a hint to the Chinese market that having risk management tools is not necessarily a bad thing, especially when the size of the futures market’s trading volume does not disrupt the market when public safety emergencies occur. A key to developing risk management tools is to encourage different types of participants to participate in the market and express different perspectives.
For example, you have a long-term perspective, and I have a short-term perspective, so that when the risk comes, it will not cause the global market to fall into a “risk-off” state. Otherwise, even the futures market cannot control the selling pressure.
When the structure of market participants is further enriched, together with risk management tools, it will help investors to make further price discovery, thereby avoiding all pressures being transferred to a spot market.
Q: In November 2019, MSCI’s “three-step” replacement of A shares has been completed. The current division factor of A shares is 20%.
Is further improvement of risk management tools the basis for MSCI’s subsequent expansion to accommodate consulting?
Wei Zhen: The epidemic will not affect the quarterly adjustment of MSCI.
At the same time, MSCI mentioned at the end that after all additional issues have been resolved, further expansion and expansion of A-share restructuring will be launched for public consultation. These issues include risk hedging and access to derivatives, and settlement of Chinese A-share returnsPeriod, the trading holiday arrangement of China Stock Connect, which forms an effective comprehensive trading mechanism in China Stock Connect.
At this time, we have no plans for further consultation.
Question: In March last year, the Hong Kong Stock Exchange and MSCI exceeded the authorization agreement. After obtaining regulatory approval and planning to launch the MSCI China A 深圳桑拿洗浴网 Index Futures Contract in accordance with market conditions, how is the current progress?
Wei Zhen: Overseas investors are happy to see the launch of more risk management tools.
At present, the specific launch time of MSCI China A-share index futures is still in the attitude of Chinese regulators.