And finally, here’s what Tracy’s interested in today |
Here's my vote for one of the craziest charts of the year. It shows shares of Perennial Energy — a Hong Kong-listed coal miner based in China's Guizhou province — basically falling off a cliff. The stock had gone up by almost 450% in a year, which was enough to propel it into the MSCI China Index as part of the benchmark index provider's quarterly rebalancing. As soon as the stock was included, however, it fell sharply and as you can see, it's never really recovered.
The power wielded by benchmark index providers has long been a fascination of mine (and here I should note that Bloomberg also provides such indices). So it's not necessarily surprising that there are instances where traders might try to take advantage of their influence by pumping a single stock until it's big enough to be included in major indices, and then dump it on passive investors who now find themselves forced to buy it in order to “hug” their benchmark. The question is whether a similar dynamic can exist for a whole market. The weighting of China stocks has doubled over the past decade to about 35% of MSCI's Emerging Markets Index, meaning anyone tracking exposure to a basket of developing countries is actually taking on a large amount of stocks from the Middle Kingdom and all the regulatory risk that now entails.
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