Following further increases in R/QFII allocations and improvements in the R/QFII application process, FTSE has begun its transition to include China A Shares in its widely followed global benchmarks with the launch of two transitional indexes for Emerging Markets.
The two new Emerging Markets indexes include China A Shares at a weighting equivalent to total R/QFII allocations. The A Share weighting will increase as total R/QFII allocations increase and the China A Shares inclusion indexes will merge seamlessly with the standard FTSE Emerging Markets indexes when China A Shares fully meet FTSE's country classification criteria for emerging markets.
FTSE expects institutional investors benchmarked to its global indexes to adopt the new FTSE Emerging Markets China A Inclusion Indexes as they receive or increase their R/QFII allocations. Emerging Markets funds are expected to begin adopting the new inclusion indexes starting this year with most funds converting prior to the inclusion of A Shares in FTSE's standard indexes. The initial weighting of China A Shares in the FTSE Emerging inclusion indexes will be approximately 5%. This is expected to increase to 32% (at 31-March 2015 market values) when China A Shares are fully available to international investors, and hence resulting in Chinese stocks (including B-Share, H-Share, P Chips and Red Chips) to make up 50% of FTSE Emerging Index.
As part of its transition programme, FTSE is working with CSRC and SAFE to ensure that FTSE's country classification criteria is included in China's capital markets development plan and China A Shares are included in FTSE's standard global benchmarks in a timely manner. FTSE will work together with various parties to assist institutional investors transition their global portfolios to include A Shares and FTSE will consult widely with institutional investors prior to determining the timing of the inclusion of A Shares in its standard global indexes.
FTSE is the most active and successful benchmark provider supporting international investment in China. Over 70% of A Share ETF AUMs listed in Hong Kong are based on FTSE China indexes. In addition, FTSE recently launched China offshore and onshore bond indexes on which ETFs are expected to be listed later in 2015. FTSE is now working with China-based fund managers to adopt FTSE benchmarks and to list ETFs and mutual funds on its China and international indexes in mainland China.
Mark Makepeace, Chief Executive of FTSE Russell, says: "The inclusion of China A Shares is the most significant challenge today facing global benchmark providers. The China domestic market is opening up to international investors but it will take several years for all of these investors to gain access to China's capital markets. 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 Indexes provide the solution.
"The transition to include A Shares in global portfolios is now beginning and we will support this transition while ensuring that all users of our global benchmarks have sufficient time to manage the change."
Xiao Gang, Chairman of CSRC, says: “We are committed to continuing our development of China's capital markets, increasing R/QFII allocations to international investors and simplifying the R/QFII applications process. We support FTSE's initiative and encourage all global benchmark providers to develop transitional plans to include A Shares in their global benchmarks.”