China's A shares have been formally included in one of the world's leading asset indexes, the FTSE Russell. The inclusion is seen as an important step in the internationalization of China's capital market and is expected to bring in a significant amount of foreign funds. 

"A major reason why FTSE Russell and MSCI included A shares in their benchmarks is because China has increased access channels for domestic equities," said Chen Jiahe, chief strategist at Cinda Securities.

Over 1,000 Chinese A shares will be included in what the FTSE Russel calls a secondary emerging market index. This is the FTSE's first-phase inclusion of Chinese shares, which is to run until March 23 next year. The first phase is expected to bring in roughly 10 billion U.S. dollars in passive foreign investments. 

The People's Bank of China says foreign investors held 244 billion U.S. dollars worth of A shares at the end of March this year, three percent of the total market cap and a significant jump from previous years. 

The A shares' inclusion in the FTSE Russell will increase the percentage of foreign ownership in the market and is also expected to have an impact on the balance of investments. 

"The stocks selected by FTSE Russell are primarily stocks available on the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects – 60 percent of them are listed in Shenzhen. That means the FTSE Russell is focusing more on China's medium- and small-sized companies because their shares are more active," said Zheng Hong, chief investment consultant at LC Securities.

The FTSE Russell Index is fully owned by the London Stock Exchange, and the A shares' inclusion at this time is seen as part of the country's deepening cooperation with the United Kingdom. 

"We can expect more access channels as Chinese equities globalize. These indexes increasing its weighting of A shares in its global benchmarks now, as China is opening up its economy gradually from the real economy to the financial sector right now," Chen explained.

"Meanwhile, there is still a foreign ownership cap on Chinese-mainland listed shares. Possibly we could see a relaxation of foreign ownership as more A shares enter global equity indexes."

More connections are expected to come. The FTSE Russell website says plans for further inclusion of A shares in its indexes "will be based on the outcome of phase one and future market developments." 

"China will now have more financial connections to the United Kingdom. The Shanghai-London Stock Connect made it possible to trade stocks from both sides, while the inclusion in the FTSE Russell will bring in more foreign capital," said Cai Junyi, chief analyst at Shanghai Securities.

This analyst added that the inclusion is an important milestone in China's financial cooperation with foreign markets and should be seen as a successful example for market players to learn from in the future.