Net inflow of the highest amount into Chinese stocks! Goldman Sachs explains the impact of MSCI index adjustments after the holiday

Cailian Press, February 14 (Editor: Shi Zhengcheng) Regarding the upcoming MSCI index quarterly adjustment taking effect after the Spring Festival holiday. In the latest strategy report, Goldman Sachs pointed out that China stocks received the largest net passive capital inflow globally during this adjustment.

Goldman Sachs also noted that, based on experience over the past five years, stocks included in the MSCI index or with upward adjustments to free float factors tend to outperform stocks removed from the index or with downward adjustments to free float factors between the index review announcement date and the date of official implementation, often giving back some gains after the adjustment takes effect. In this process, emerging market (EM) assets generally offer better alpha opportunities than developed markets (DM).

MSCI index adjustments are primarily based on quantitative criteria such as market capitalization, free float ratio, liquidity, and investability, while technical steps like free float factor segmentation leave limited discretionary space. Therefore, the adjustment also reflects the reallocation logic of global funds at regional and industry levels.

Chinese assets will see capital inflows

According to Goldman Sachs estimates, this MSCI core index adjustment will trigger over $17 billion / $14 billion in two-way passive trading in Asia-Pacific and global emerging markets (APAC / GEM), with net inflows of about $1.6 billion / $450 million.

Among them, Chinese stocks are expected to receive about $1.4 billion in net passive capital inflows, making them the largest net inflow in the global stock markets. On the other side of capital flows, France, the UK, and the US stock markets are expected to be the main markets experiencing outflows.

(Source: Goldman Sachs, MSCI)

Capital flow characteristics are prominent

The index adjustment results also show that passive capital flows exhibit a relatively concentrated pattern of inflows and outflows at the industry level, reflecting certain structural features of this rebalancing.

Goldman Sachs statistics indicate that the industry characteristics of capital flows are relatively clear: in the Asia-Pacific region, technology hardware and semiconductors (+2.2 billion USD), capital goods (+930 million USD), and software and services (+480 million USD) are the main beneficiaries; meanwhile, sectors like consumer, transportation, and travel services face passive reductions.

In the Chinese market, this main trend is mainly reflected through three paths: first, semiconductors and related hardware, including equipment, core components, and key materials; second, AI software and autonomous driving applications, mostly concentrated in Hong Kong stocks; third, upstream resources and materials, such as non-ferrous metals and fields closely related to computing infrastructure.

Goldman Sachs’s estimates show that most Chinese stocks receiving capital inflows in this round possess attributes of “hard technology” + “AI chain,” or are hot recent star stocks in the non-ferrous metals sector. Among them, SenseTime, Longfei Fiber, Hesai Technology, and Xiaoma Zhixing, four Hong Kong stocks newly included in the index, are expected to see at least $200 million in potential net passive inflows. CATL will also benefit from the upward adjustment of the free float factor, resulting in capital inflows.

Another beneficiary sector is midstream manufacturing, materials, and hard technology. Stocks like Century Huatong, Tungsten High-tech, and Hongqiao Holdings rank high in the net passive inflow estimates.

Similar situations also occur in the US stock market. Lumentum, a core optical communication device supplier, and Coherent, a upstream optical source, materials, and industrial equipment manufacturer, are both expected to see nearly $700 million in net capital inflows during this adjustment.

According to the schedule, the relevant adjustments will take effect after the close on February 27, with the next quarterly adjustment announced on May 12.