Skip to main content

You are here

Blog Listing Page

Reforms open China’s markets to investors

The rebound in emerging market stocks in 2015 and much of this comeback can be attributed to the performance of China’s equity markets. Through May 25 of this year, the FTSE China 50 Index has returned 22.0%. The FTSE China 50 Index is comprised of 50 of the largest and most liquid Chinese stocks (H Shares, Red Chips and P Chips) listed and trading on the Stock Exchange of Hong Kong.

FTSE China 50 Index                                                                                                                                                                                                                                                 

Source: Financial Times as of May 22, 2015. Past performance is no guarantee of future results.

Even more noteworthy has been the performance of the FTSE China A Index, which has risen 51.4% so far in 2015. The FTSE China A Index represents the performance of mainland A Shares—securities of Chinese incorporated companies that trade on either the Shanghai or Shenzhen stock exchanges—that are available to international investors via quota schemes.

One of the major catalysts for these returns is China’s commitment to economic reforms. These include making China’s financial markets more accessible to overseas investors and promoting the yuan’s role as a leading international currency. The yuan is playing an increasingly important role in global trade – it was the currency for nearly one-quarter of all cross-border transactions in 2014, and China is promoting the yuan as a global reserve currency, joining the ranks of the dollar, euro and yen. 

At present, foreigners have limited access to mainland China A-shares through quota-based qualified investor programs, but this has been changing with new market reforms intended to ease restrictions. For example, China launched a cross-border exchange program last November that links the Shanghai and Hong Kong exchanges and allows Hong Kong investors to trade eligible mainland shares.

FTSE has recently launched two new China A Inclusion Indexes to help market participants prepare for easier access to this market as restrictions are relaxed. The inclusion of A-shares in global indexes could potentially lead to huge inflows of capital to China’s markets from overseas investors. Existing R/QFII quota-based schemes limit China to a 4.8% weighting in the FTSE Emerging China A Inclusion Index, but if the quota restrictions are to be removed in the future China A-shares stocks could represent nearly a quarter of the broader emerging markets inclusion index.

FTSE Russell CEO Mark Makepeace has indicated he believes that China’s inclusion in global benchmark indexes may be no more than three years away. If these expectations should materialize, China would likely not only comprise a large share of emerging market indexes, but could also quickly grow to become as much as one-fifth of global index portfolios.

 

 

© 2015 London Stock Exchange Group companies.

London Stock Exchange Group companies includes FTSE International Limited (“FTSE”), Frank Russell Company (“Russell”), MTS Next Limited (“MTS”), and FTSE TMX Global Debt Capital Markets Inc (“FTSE TMX”). All rights reserved.

“FTSE®”, “Russell®”, “MTS®”, “FTSE TMX®” and “FTSE Russell” and other service marks and trademarks related to the FTSE or Russell indexes are trademarks of the London Stock Exchange Group companies and are used by FTSE, MTS, FTSE TMX and Russell under license.

All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by the London Stock Exchange Group companies nor its licensors for any errors or for any loss from use of this publication.

Neither the London Stock Exchange Group companies nor any of their licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the FTSE Russell Indexes for any particular purpose to which they might be put.

The London Stock Exchange Group companies do not provide investment advice and nothing in this communication should be taken as constituting financial or investment advice. The London Stock Exchange Group companies make no representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the London Stock Exchange Group companies. Distribution of the London Stock Exchange Group companies’ index values and the use of their indexes to create financial products require a license with FTSE, FTSE TMX, MTS and/or Russell and/or its licensors.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back-tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

Blog Listing Page