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China – A growing equity market for the world’s largest economy

Economic experts have long predicted China’s rapidly growing economy would someday surpass the U.S. as the world’s largest. According to the International Monetary Fund (IMF), this expectation has at last materialized. On December 4, the IMF released data revealing that by year end China will – in purchasing power parity (PPP) terms – produce $17.6 trillion in GDP, narrowly exceeding the $17.4 trillion in economic output produced by the U.S.

It is perhaps no small coincidence that China’s stock market has also experienced significant growth in size in recent years. As illustrated below, while the US equity market is still the largest in the world by a wide margin, China’s equity market has grown at a significant pace over the past 10 years. As a result, as of the end of December 2013, China had become the second largest equity market, as measured by market value.

 

Source: London Stock Exchange, HKX, WFE, Wind, FTSE Group; data as at 31 December 2013

Several factors would point to the expected continued interest in China and the growth in equity listings over the coming years.  First, although China’s pace of growth is slowing, IMF growth rate projections are still larger for China than other developed markets.  Following 15 months of restrictions on IPOs, 2014 has seen a steady number of listings on the mainland, with a strong pipeline estimated to be just under 600 applications in the mid-year. In addition, high profile China N-share listings such as Alibaba and JD.com have attracted significant investor attention around the globe. Growth in the allocation of QFII and RQFII remains strong with $114 billion approved at the end of November. Finally, last month’s much anticipated debut of the Shanghai-Hong Kong Stock Connect program marked an historic step towards opening Chinese capital markets to international investors.

Such developments suggest that the country that has grown to be the world’s largest economy should continue to open up its markets and potentially attract new investors. That will in turn encourage the further development of its equity markets. 

As the leading international index provider of Chinese indexes, FTSE has been a part of this remarkable evolution since the beginning of this century. FTSE has since been providing Chinese domestic and international indexes to global and domestic investors. The two flagship FTSE China indexes– the FTSE China 50 Index and FTSE China A50 Index – were designed to provide tools to investors with and without access to the domestic Chinese market. As of December 5, 2014, ETFs and funds tracking the FTSE China A50 Index had assets under management of $15 billion and there was a total of $24 billion tracking the FTSE China Index Series.

 

 

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