FTSE Russell Goes Bullish on China Stocks, Following MSCI

28 Septembre, 2018, 10:23 | Auteur: Auguste Feret
  • FTSE Russell promotes China A Shares to Emerging market status

MSCI's consultation for a further weight increase of Chinese A-shares comes just months after their historic entry into MSCI indexes in June, which has brought in tens of billions of dollars into the market.

FTSE's initial weighting and stock selection were greater than that of its major rival, MSCI Inc., which included some 230 mainland-listed companies into its benchmark MSCI Emerging Market Index in June, giving A-shares an initial weighting of 0.39% that rose to 0.75% in September. This is expected to trigger roughly $10bn (€8.6bn) of inflows into passive products tracking the index.

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.

"If you don't add China - the world's biggest emerging market - into your emerging market index, your benchmark would be defective, at least incomplete", he said.

MSCI is now consulting with clients about including more A-shares in its indexes over the next couple of years.

The Shanghai Composite index gained 0.9% during Wednesday's trading session on hopes that these moves will drive more foreign capital to the Chinese market. On Wednesday, MSCI said it would consider increasing Chinese share weighting in its indexes.

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In contrast, USA rival MSCI gave A-shares a roughly 0.8 percent weighting in its emerging market benchmark initially, triggering an estimated $18 billion of inflows.

While still to be approved, the substantial increase in China's weighting in these benchmark indexes has helped pushed Chinese stocks sharply higher following the announcement. "The Chinese government has accelerated the opening up of the market by addressing issues around capital controls and clearing and settlement, resolving previous concerns and ensuring that China's importance to the global economy can not be ignored any more".

FTSE Russell, the global index, data and analytics provider, has confirmed that the China A Shares market will be promoted to Secondary Emerging market status following the September 2018 annual country classification review.

Makepeace told a news conference in Shanghai that FTSE Russell would review the inclusion of Chinese bonds in its global indexes next March. "It is an indication the pace of inclusion is faster than the market had anticipated". Now that we have added China to the Watch List, we look forward to engaging with investors and regulators in the coming months in applying this process.

FTSE Russell framed its move as a vote of confidence in China after "the long-term reforms that have been implemented over the past few years". Poland has officially achieved Developed market status and Iceland is being reclassified to Frontier market status.

Romania is on FTSE Russell's equity watch list with a view to adding it to the secondary emerging market group. The index provider's full list of country definitions can be found here.

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