SAO PAULO, June 10 (Reuters) - MSCI’s decision to delay the inclusion of Chinese domestic shares in a global benchmark index tracked by funds worth $1.7 trillion provided a boost to Brazilian stocks on Wednesday.
The decision, announced after markets closed on Tuesday, was a relief to investors who feared the move would force funds tracking MSCI’s Emerging Markets Index to sell Brazilian shares to make room for the Chinese newcomers.
Brazil’s benchmark Bovespa index jumped 2.4 percent, also supported by a recovery in oil and iron ore prices that bolstered shares of state-run oil producer Petroleo Brasileiro SA, known as Petrobras, and miner Vale SA.
China’s benchmark stock indexes fell more than 1 percent on Wednesday, closing the session with more modest losses.
“The decision delayed the risk of outflows from the (Brazilian) bourse,” said Eduardo Roche, a fund manager with Canepa Asset Management in Brazil.
The Brazilian bourse could suffer outflows of $10.2 billion if MSCI included in its emerging market indexes Chinese shares listed in New York, also known as American Depositary Receipts, and those listed domestically, Citi estimated in a recent report.
Chinese ADRs are expected to be included in MCSI’s indexes in November during a semi-annual review by the index provider.
China needs to further liberalize its capital markets, however, before its domestic shares are allowed into the same indexes, MSCI said on Tuesday.
Uncertainty over the timing of the inclusion of Chinese domestic shares increased after MSCI said a decision "may happen outside the regular schedule" of its annual market classification review. (bit.ly/1FSdPSD)
If those two changes were implemented, Brazil’s share of the MSCI Emerging Markets Index would fall to 7.5 percent from its current 8.1 percent level, Citi estimated. If only Chinese ADRs were included, Brazil’s portion of the index would drop to 7.7 percent. (Writing by Walter Brandimarte; Editing by Alan Crosby)