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Xiaomi, Meituan among dual-class stocks to join MSCI indexes

Nine stocks with dual-class shares are being added to the MSCI All-Country World Index

Hong Kong

XIAOMI Corp and Meituan Dianping will be among the companies with unequal voting structures added to some of the world's largest equity benchmarks later this month.

MSCI Inc said it will add nine stocks with dual-class shares to its global benchmark MSCI All-Country World Index. Seven of the companies are based in China, while the others are in the US, according to a quarterly review dated Feb 11. The Chinese firms, which also include Tencent Music Entertainment Group, will also be added to the MSCI China All Shares Index.

The inclusions came after MSCI temporarily blocked firms with dual-share class from entering its indexes while it conducted a consultation in 2017 and 2018. In October, the index compiler decided to allow companies with multiple share classes to stay in its benchmarks.

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Index compilers like MSCI have been grappling with dual-class shares since photo-sharing app Snap Inc took the notion to the extreme by giving zero voting rights to investors in its US$3.4 billion initial public offering in 2017.

S&P Dow Jones Indices and FTSE Russell decided to exclude some dual-class shares going forward. MSCI took a different tack, creating substitute benchmarks for investors who didn't want to touch the share class.

Corporate governance advocates argue that shares with weighted voting rights give undue authority to founders at the expense of ordinary shareholders, making it harder for investors to influence the board.

The structure's supporters say such shares enable executives to focus on the long term and resist expectations by major investors that each quarter's earnings will be better than the last.

The issue took on added prominence last year when exchange operators in Hong Kong and Singapore amended listing rules to let companies with the share structure apply for an initial public offering.

The changes by MSCI are part of 17 additions and one deletion to the MSCI All-Country World Index. KKR & Co and Altice USA Inc were the two US dual-class stocks added, and Adyen NV will also join the measure. Foxconn Industrial Internet Co will be included in the MSCI Emerging Markets Index. The changes take effect at the close of trading on Feb 28.

Xiaomi ended 0.9 per cent lower in Hong Kong after touching its highest level in a month earlier in Tuesday's session. The stock saw a wave of sales after the end of its lockup period, when key investors were banned from selling. Meituan Dianping dropped 4.1 per cent after surging 32 per cent during a seven-session win streak.

Foxconn Industrial Internet added 3.2 percent in Shanghai, while parent Hon Hai Precision Industry Co climbed 3 per cent in Taipei. BLOOMBERG