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Baidu To Be Added In MSCI China Index And Set To Steal Alibaba's Thunder

|Includes: Alibaba Group Holding Limited (BABA), BIDU

In China, Tencent and Alibaba are the most wanted, while Baidu has been cornered in the market. However, a belated change has occurred in global stock market indexes, which will through some interest in Baidu's way.

Baidu Inc. is expected to witness an inflow of new stockholders thanks MSCI for a vital change. Due to which, Baidu will be able to join Alibaba in Wall Street. It is also likely to steal some Tencent Holdings thunder. However, Alibaba stock is under-performing on Wall Street recently, but it is still a hot stock to consider by investors.

The previous month an announcement was made by MSCI that it will include some foreign listed companies in its own country indexes. According to the Wall Street journal analyst Aaron Back, Tencent Holdings has been dominating the MSCI china index with weighting of 10.3%. At the moment Alibaba and tencent are not in MSCI index.

After becoming the part of MSCI index both the companies will see a sharp interest since many funds follow the index. According to MSCI Market Index, in June 2014 around $228 billion of passive funds was invested. Certainly, the numbers will be different for MSCI china index, but the purpose is to bring focus on how significant MSCI's indexes are for worldwide fund industry.

Since Alibaba Group Holding Ltd. got public. It has been great for Wall Street. However, the entry of Baidu in MSCI china index will have more advantage than Alibaba holdings.

MSCI in its indexes assigned the weighting to the companies by the available free float, which means Alibaba has a larger market capitalization so it will get a less weighting compared to Baidu's smaller free float. According to a stimulation published in October 2014, that Baidu's will have a weightage of 6.5% in contrast to Alibaba weighting of 3.1% when the companies will join the MSCI china index.

Next month, some of Alibaba's insider owned share will expire, so there are chances of increase in the weightage and rise in free float of the company.

According to Back, even if Baidu and Alibaba weightings get equal it is still expected that Baidu stock price will be stronger than Alibaba's. Despite a sharp correction in Alibaba's holding shares, it is still trading above 27% since its IPO price. Tencent shares went up by 8% in the same period while Baidu shares price declined by 8%.