FTSE unveils innovative China A-share index series as mainstream inclusion nears

Jun 5th, 2014 | By | Category: ETF and Index News

Global index provider FTSE has unveiled a suite of indices that will provide market participants with the ability to include China A-shares in global indices at a time of their choosing.

FTSE unveils innovative China A-share index series as mainstream inclusion nears

Mark Makepeace, CEO of FTSE Group.

So-called A-shares are equities of companies incorporated in mainland China, denominated in renminbi and traded on the Shanghai and Shenzhen stock exchanges.

The new suite, known as the FTSE Global R/QFII Index Series, is designed to allow foreign investors to transition flexibly into these quota-controlled stocks as the market progressively opens up to overseas investors.

The indices can either be weighted by the aggregate approved QFII/RQFII quota; weighted by free float/foreign ownership restrictions; or have no quota restriction. Investors can also customise the indices based on their own QFII/RQFII allocation.

Market participants that do not wish to have A-shares in their global benchmarks can continue to use the FTSE Global Equity Index Series, which will remain unchanged.

Mark Makepeace, CEO of FTSE Group, commented: “China continues to take steps to open its markets to international investors and the debate around the inclusion of A-shares in global benchmarks is of increasing importance to investors. FTSE has an established track record in the region and continues to strive to be at the forefront of passive investment in China.”

He added: “The launch of the FTSE Global R/QFII Index Series will provide customers with the flexibility to decide when and how to include China A-shares in their global benchmarks, without making it a requirement. We feel that this is an important step in an evolving process and FTSE will continue to monitor developments in the China market infrastructure, in line with our transparent Country Classification process.”

China A-shares are not currently included in FTSE’s standard global benchmarks. However, the region has been on FTSE’s ‘watch list’ since 2005, with the company’s country classification committee monitoring the gradual and positive market developments with respect to a number of key areas, including market and regulatory environment, custody and settlement, dealing, derivatives and size.

FTSE notes that further progress is required in areas such as market accessibility and quota allocation, regulatory oversight, and capital repatriation. A formal review of the status and eligibility of A-shares will be held as part of the annual country classification review, which takes place every September.  The next review is due in September 2014.

FTSE is a global leader for China-based equity indices, with more than half of all non-China domiciled global ETF assets invested in China linked to FTSE products. Over 75 per cent of China A-share ETF AUM in Hong Kong is referenced to FTSE indices. As of 2 May, 2014, ETFs and funds tracking the FTSE China A50 Index and FTSE China 25 Index totalled USD $11.25 billion and USD $6.20 billion AUM, respectively.

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