FTSE Russell will join the MSCI next year when it adds Chinese stocks to its global indexes, with A-shares representing 5.5% of its emerging markets index.
China A-shares will be added in June 2019, as part of a three-stage plan. The 5.5% inclusion will constitute initial passive net inflows of $10 billion worth of assets under management, the firm said. A-shares generally are restricted only to Chinese investors.
“The Chinese authorities have continued to introduce reforms designed to open their market to international investors and have transformed their economy into the second -largest in the world,” said Mark Makepeace, FTSE Russell’s chief executive officer. Because the firm was the first international index provider for mainland China’s benchmarks 20 years ago, he said it would “continue to work with our global clients to provide benchmark and analytic solutions to facilitate their equity and fixed income investments in the region.”
About 1,200 Chinese businesses are expected to be added to FTSE’s indexes in the first phase.
Dr. Xinghai Fang, vice chairman, China Securities Regulatory Commission, was pleased with FTSE Russell’s A-shares inclusion. He called the move “an important next step in the development of our capital markets and reflects the long-term reforms that have been implemented over the past few years.”
Chinese government bonds will also be added to FTSE’s watch list to possibly become included in other indexes at a later date.
The MSCI added Chinese companies to its benchmarks earlier this year. This week, the firm said it would ponder increasing China’s weight in its emerging markets index to 3.36% from 0.71% over the next two years.
The move comes at a time where China’s market reforms have opened the floodgates for institutional investors wider than before. Due to President Donald Trump’s trade war, Chinese equities have been navigating some choppy seas as of late. The Shanghai and Shenzhen-tracking CSI 300 index, for example, has fallen 15.2% year-to-date. FTSE and MSCI’s inclusion of Chinese equities give them a broader range of investors.