FTSE Group Introduces China A-Shares Indices

ETF Trends

FTSE Group, the indexing unit of the London Stock Exchange, today introduced a series of indices that will allow market participants to include China A-shares in global indices at a time of their choosing.

“The new 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,” according to a statement issued by FTSE.

The renminbi qualified foreign institutional investor (RQFII) licence by the China Securities Regulatory Commission (CSRC) is essential for investment firms to be a foreign owner of A-shares. There are five A-shares ETFs trading in the U.S. and three in London, the newest of which is the db X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (ASHS) . ASHS debuted in late May .

The new offerings from FTSE could help global investors prepare for the possible inclusion of China’s A-shares in global benchmarks.

“China A-shares are not currently included in FTSE’s standard global benchmarks. The region has been on the Watch List since 2005 and FTSE’s Country Classification Committee has been able to monitor the gradual and positive market developments with respect to a number of key areas of the Quality of Markets Matrix. Further progress is required in areas such as market accessibility and quota allocation, regulatory oversight, and capital repatriation. Through additional consultation and engagement with customers, stakeholders and the Chinese authorities, FTSE will continue monitoring developments in these key areas, and notify the market where appropriate,” said FTSE in the statement.

The index provider’s next market classification review is in September. Later this month, FTSE rival MSCI is expected to make a decision on including A-shares in the MSCI Emerging Markets Index, to which over $1.3 trillion in global assets are benchmarked. [Move to EM Indices Could Boost A-Shares ETFs]

MSCI’s inclusion of A-shares in the emerging markets index would be gradual, starting with 5% in 2015, according to the index provider.

FTSE has over 13 years worth of experience in developing China benchmarks, one of which is the underlying index for the iShares China Large-Cap ETF (FXI) , the largest and most heavily traded U.S.-listed China ETF.

The QFII and RQFII schemes were launched in 2002 and 2011 respectively. Both schemes have gone through a series of changes since their launch and the changes in the past three years are particularly significant. From the end of December 2011 to the end of March 2014, the QFII and RQFII quota available to foreign investors increased from USD 30 billion to USD 150 billion and from RMB 20 billion (USD 3.2bn) to RMB 480 billion (USD 77.2bn), respectively,” according to FTSE research.

 

ETF Trends editorial team contributed to this post.

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