Chinese stocks surge on back of MSCI rumors

An investor looks at stock prices in a brokerage house in Hangzhou, East China's Zhejiang province, May 31, 2016. [Photo/IC]

Mainland stocks jumped the most in two months on Tuesday with foreign funds flowing in, driven by expectation that MSCI Inc will next month add mainland shares to its index for the first time.

The Shanghai Composite Index surged as much as 3.34 percent, closing at 2,916.62 points, led by financial companies. Nine securities firms, including Western Securities Co and Shanxi Securities Co, climbed by the daily limit as the top performers in the market.

The Shenzhen Component Index rose 4 percent, while the ChiNext startup index climbed by 4.92 percent.

The odds that mainland stocks will be included in MSCI's indexes got a boost after the Shanghai and Shenzhen stock exchanges on Friday published rules restricting trading halts.

"The change to trading suspension rules addressed one of the key concerns raised by foreign investors during the MSCI annual survey, which can be a spark to the stock market rebound," said Hong Hao, managing director at BOCOM International Ltd.

The CSOP FTSE China A 50 ETF－the largest offshore exchange-traded fund that enables direct foreign investment to Chinese mainland shares－saw a net capital inflow of about 2 billion yuan ($303.9 million) on Monday, the largest single-day inflow in the past year.

"I believe it (the inflow) is global investors' response to a series of recent positive measures taken by the Chinese government and the regulators," said Ding Chen, CEO of CSOP Asset Management in a statement.

In another sign of rising foreign interest in mainland shares, there was a net inflow of 2.98 billion yuan on Monday into the A-share market through the northbound leg of the Shanghai-Hong Kong Stock Connect, the biggest one-day inflow since April 14.

The rush of funds came just as index provider MSCI started a third round of consultations with investors over whether to include yuan-denominated A shares in its emerging markets benchmark.

Reuters contributed to this story.