By Chris Woods, head of policy and governance
We announced our Country Classification Review for Fixed Income and Equities after US markets closed on Thursday. The aim of this process is to provide investors with an objective framework for evaluating and investing across asset classes in global equities and fixed income markets, so our approach to country classification follows a comprehensive and transparent process and is informed by feedback from a broad set of independent market participants and index users.
The most significant development was the news that Chinese Government Bonds will be included in the FTSE World Government Bond Index (WGBI) with inclusion scheduled to start in October 2021. This reflects ongoing progress by China toward market reforms and increased access for global investors. Confirmation of the start date will be provided in March 2021 following ratification from FTSE advisory committees and index users that recent regulatory reforms and infrastructure enhancements meet the practical needs of investors.
Since being added to the Watch List for WGBI inclusion in 2018, Chinese authorities have implemented significant improvements to the fixed income market infrastructure to expand access to international investors, including improving secondary market bond liquidity, enhancing the foreign exchange market structure and developing global settlement and custody processes. Additional reforms are imminent, including the facility for international investors to register at legal entity level when opening accounts.
The Chinese authorities have worked hard to enhance the infrastructure of their government bond market. Subject to affirmation in March, international investors will be able to access the second largest bond market in the world through FTSE Russell’s flagship WGBI. We are looking forward to engaging with investors and regulators in the coming months in applying this process.
China is to be commended on its recent market reforms, including enhancements to bond market liquidity, allowing additional choice of counterparties for FX trading, and implementing improvements to post-trade settlement and custody practices. We will continue to work closely and constructively with the People’s Bank of China over the coming months to ensure the recently implemented reforms yield tangible improvements to market structure.
The fixed income technical notice is available here.
Following the equities Country Classification announcement, Vietnam remains on the Watch List for reclassification to Secondary Emerging, and Russia will be added to the Watch List for reclassification to Advanced Emerging, while Argentina will move from Frontier to Unclassified. The technical notice for this announcement can be found here.
More information on the Equity Country Classification framework and the Fixed Income Country Classification framework can be found on our website.
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