UK index compiler FTSE Russell to add Chinese stocks to its global equity gauges
FTSE is the second compiler of global indexes to add the mainland’s yuan-traded A shares to its benchmark and expects the inclusion to bring an inflow of US$10 billion.
FTSE Russell, the UK-based index compiler, said it will add Chinese stocks to its benchmarks starting next June, marking further integration of the world’s third-largest stock market into global equities.
The inclusion will be implemented in three stages through March 2020, using 25 per cent of the investible market capitalisation of the yuan-traded A shares from small- to big-caps covered by FTSE, the index compiler said in a statement on its website on Thursday.
Upon completion of the first stage, Chinese stocks will represent an initial 5.5 per cent of the FTSE Emerging Index, which will draw an inflow of US$10 billion from passively-managed funds, and the weighting in the FTSE Global All Cap Index will be at 0.57 per cent, according to the statement.
FTSE is the second compiler of global indexes to add the mainland’s yuan-traded A shares to their benchmarks after MSCI, which announced the A-share inclusion in June to prompt overseas investors to buy a combined 126.4 billion yuan of Chinese stocks since then.
Global index compilers are increasingly expanding their foothold on China’s A-share markets that are valued at US$5.9 trillion, as Chinese regulators have made it easier for foreigners to buy the stocks by starting connect programmes with Hong Kong and have scrapped restrictions on fund repatriation and lock-up periods.
“The size and scale of China’s stock market means the direction of travel over time is one of rising weightings in key regional and global indices,” said Nicholas Yeo, head of China equities at Aberdeen Standard Investments. “As long as the China government continues to improve regulations like tightening up trading suspension, widening market access, encouraging companies to improve ESG standards, we don’t see why index providers wouldn’t include A shares or increase China’s weighting.”
Just a day earlier, MSCI said it would immediately start a consultation with global fund managers to quadruple the weighting of Chinese stocks and add smaller companies for the first time. Chinese stocks’ weighting in the MSCI Emerging Markets Index will increase to 3.36 per cent from 0.8 per cent currently, should investors endorse the proposal.
Still, increased foreign buying has not stemmed declines in Chinese stocks this year, as local investors have fled the markets that have been buffeted by the trade war with the US and financial deleveraging. The Shanghai Composite Index is down 16 per cent so far in 2018, making it the worst-performing benchmark among the world’s major markets. It dropped 0.5 per cent to 2,791.78 at the close on Thursday.