As of today, China A Shares are included in FTSE Russell’s flagship FTSE Global Equity Index Series (GEIS) benchmarks. Investors and markets have followed the process closely and it has made headlines around the world. But what are the main points?
1. This is a first. Today is the first time that mainland China listed companies, or ‘China A Shares’, have been included in FTSE GEIS. It follows a long period of consultation, in line with our FTSE Equity Country Classification Review process.
2. All sizes of China A Stocks are included: The China A Shares of 1,005 large, mid and small cap companies are now represented in FTSE GEIS, marking a significant step for China and for global investors seeking deeper exposure to China’s equity market.
3. The process is phased: China A Shares have been added to the FTSE Emerging Index as of Monday 24 June 2019. But China A Shares will be included in a phased timeline, with the next tranche scheduled to occur this September. The table below sets out the first phase of implementation. (full details in the timetable is available on page 5 of our Q&A).
In Phase 1, the inclusion factor – the portion of the investable market cap of each security to be added – was set at 25% based on anticipated inflows and demonstrated capacity.
The table below compares the weight of China pre-A Share inclusion, post tranche 1, and its projected weight after completion of all three tranches of Phase 1 in March 2020. Tranche 1 has bumped the weight of China up slightly, as expected, and once the remaining 80% of the Phase 1 portion is added to the indexes, we project that China A' Shares's weight will increase to 5.36% in the FTSE Emerging Index.
Comparison of China’s weight in select FTSE GEIS indexes
*Weight of China (B, H, N, P, Red and S) based on prices and index constituents as of close on 21 June 2019
**Projected weight of China A Share as of March 2020 reflecting the Country Classification change for Saudi Arabia (EM) and based on a China A Share foreign ownership limit of 28%
***Projected weight of China A, B, H, N Share, P, Red and S Chip as of March 2020
The total investable market capitalisation of China A Shares included in the FTSE Emerging Index is c$ 62 billion today (24 June 2019) with $310 billion to be added by March 2020. (Based on prices as of 21 June 2019). Around $140 billion is tracking the FTSE Emerging Index.
4. Phase 1 is not the end of the process. The timing and size of additional phases of implementation will be based on the outcome of Phase 1 and future market developments. These include an increase to the quota size and whether enhancements to the QFII and RQFII access routes are implemented. We will continue to evaluate China’s markets through the FTSE Equity Country Classification framework and in consultation with market participants
5. The news will not be a surprise to the market. In line with our country classification processes, we flag our consultations in advance, and we provide market participants with advance notice of implementation. In this case, we announced in September last year that the first phase was scheduled to begin in conjunction with the FTSE GEIS quarterly review in June 2019, giving market participants ample time to adjust.
6. The announcement is the latest step in our long association with China. FTSE Russell was the first international index provider of mainland China benchmarks 20 years ago. Approximately US$27 billion of AUM is benchmarked to or tracking FTSE China Indexes. We will continue to work with the markets and international investors to offer products and analytical solutions to facilitate their investments in the region.
7. We offer a range of China insights. For an analysis of the country’s economic metamorphosis over the past 40 years, as well as recent developments surrounding China’s domestic equity and bond markets, read our paper here. For more on the China A process, refer to our Country Classification page, or read our infographic.
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