The initial weighting of China A-shares in the new FTSE Emerging Markets China A Inclusion indices will be about 5%. This is expected to increase to 32% when China A-shares are fully available to international investors.
FTSE said recent measures to expand the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) quotas along with improvement in the allocation process had prompted it to take this initiative.
The global index provider said it is working with the Chinese Securities Regulatory Commission and the State Administration of Foreign Exchange to ensure China A-shares are included in FTSE's standard global benchmarks.
Xiao Gang, chairman of the CSRC, supported FTSE’s move and said the regulator would continue to develop its capital markets, increase QFII/RQFII allocations to international investors and simplify the quota application process.
The FTSE initiative comes at a time when the MSCI is due to review inclusion of China A-shares in its global benchmark indices, expected in June.
Large amounts of capital could flow into the mainland market if the MSCI decides to include China A-shares in world indices, Catherine Yeung, investment director at Fidelity Investments recently said in an interview with Fund Selector Asia.
Market reforms prompt action
China’s domestic market is opening up to international investors, but it will take several years for all these investors to gain access, said Mark Makepeace, FTSE's chief executive.
“Our customers have been telling us that they want greater access to the world's second largest economy, but they lacked an appropriate and flexible benchmark which would allow them to achieve this aim. The new FTSE Emerging Markets China A Inclusion Indices provide the solution.”
FTSE expects institutional investors benchmarked to its global indices to adopt the new FTSE Emerging Markets China A Inclusion Indices when they receive or increase their QFII or RQFII allocations.
The index provider said it would consult with institutional investors to assist them in transitioning their global portfolios.
Apart from RQFII/QFII reforms, China has also made its markets more accessible to foreign investors with the launch of the Stock Connect in November. A look at the year-to-date rally in key China indices: