NewFTSE Russell declines to add China A-shares to emerging market index

Index provider FTSE Russell said on Thursday it would not include domestic Chinese equities in its emerging markets index, aligning with US index maker MSCI’s decision in June not to grant the so-called A shares designation as emerging market assets.

FTSE Russell’s Chief Executive Mark Makepeace said it would keep the A shares on its watch list for possible inclusion as a secondary emerging market, saying it was not a matter of “if but when” China would be elevated to emerging market status.

“China’s important and it is going to happen with China,” Makepeace said by phone. “None of us can quite say when because that’s in the hands of the Chinese authorities, but it is a very large and important market.”

The company said it held off on including Chinese equities because of concerns about China’s capital controls and the country’s penchant for intervention in financial markets.

Makepeace said that though positive changes had been made, including linking the Hong Kong and Shanghai markets, the widening of quota limits and a reduction of controls on the repatriation of funds, foreign investors needed to gain an additional degree of confidence in the country’s markets.

“They’re getting there and they’re making good progress in that way, and they’re getting close to meeting their criteria,” Makepeace said. “They’re not there yet, but they’re getting close.”