Macro Commentary
Deal or no deal? In an otherwise quiet week in equity markets, the never-ending Greek story seemed to at least correlate if not cause the market gyrations which left us about where we started. No progress over the weekend, markets down. A leak that there may be something in the works, markets up. IMF leaves Athens without a deal done, markets back down. There really is not much more one can say on the topic. Everyone expects to see the can kicked but I’ll be darned if the can isn’t hanging around a bit longer than anyone expected. Meanwhile, markets are not going much of anywhere until the information becomes heftier than the journalistic equivalent of watching for when Greek Prime Minister Tspiras checks in on social media while waiting for a latte at a German Starbucks.
On a side note, index providers MSCI delayed this week’s scheduled decision of whether to include Chinese A share markets into their index. Competitor FTSE announced a few weeks ago that they launched a “transitional” equity index to allow institutional investors the time to adjust their reporting. In this transitional FTSE Emerging Markets index, the A share market (by itself, not all China) is starting at a 5% weight (set based upon the quota of shares accessible to non-Chinese institutions) and will be at 32% when fully included (after market liberalization). They estimate that China will be 50% of the FTSE Emerging Equity index when you include B-shares, H-shares, P chips and Red chips (note that is only China-specific and excludes general Hong Kong and Tawian listed stocks as part of “greater China”). All of these estimates are based upon values as of 3/31/2015. A report from Morgan Stanley this week suggests that Chinese capital markets could see capital inflows of $400bln (and potentially up to $1.2trln) over the next five years as financial markets open up and institutional money (ever conscious of their benchmarks) start to shift. Market liberalization is great for China over the intermediate term, even if some pockets like Shenzhen (and its subsectors like ChiNext) are bubbling over.