FTSE Russell has finally begun to include Chinese A-shares. Developed through years of experience measuring China’s economic development, FTSE Russell offers a range of indexes to support both domestic and international investors looking to access this unique opportunity set. As the first international provide of mainland Chinese benchmarks and an ever-expanding index product range that captures the breadth and depth of China’s equity and fixed income markets, FTSE Russell leads the way in providing solutions to clients.
Philip Lawlor, managing director of global market research at FTSE Russell, discussed the criteria for the A-shares inclusion on CNBC recently, stating, “This has actually been a long time in the making. We have quite a rigorous process of the inclusion. We call it the quality market criteria. And this is something we work with very major clients on the buy side, some of them major institutions globally, so a lot of this is demand driven by them. And our quality of market is all about the status of settlement, trade ability, custodianship, regulation. So it’s a very rules driven process, and actually 3 or 4 years ago, very heavy-duty negotiations were in place to get these things in place. So the point is, it’s very objective. It’s very systematic and transparent.”
Despite the research and development that has gone into this process, some investors believe that FTSE may be just caving to the latest geopolitical tensions. Lawlor ensures investors this is not the case however.
“I think we can look people in the eye and say this is not being driven by any external political pressure… We must understand this is primarily being driven with us by the major clients,” he added.
The advent of the A-shares inclusion in the FTSE-Russell has been driven largely by demand for new Chinese business, and an assortment of new equities are have been selected to be phased in gradually as a result.
“I think if you actually look at this phasing of this, I mean, just to put the A-shares in context, this is 51% of the total free-flow from Chinese equities that’s so far being untapped, hence the client demand. So our real concern is doing this in a very systematic phased way,” Lawlor described.
The new A-shares will make China a key player in the index, as it has been in emerging markets.
“With the inclusion of A, and you take us through to about March of next year, China’s going account for about 36 or 37% of the emerging market benchmark. So it’s too big to ignore. It’s gonna dominate emerging markets just as the U.S. dominates developed markets. So this A-share is a big story because this is a long-term thematic trend,” Lawlor said.
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