After three years of saying "no," global index provider FTSE Russell on Wednesday welcomed shares from the Chinese mainland markets into its major benchmarks, a move that could drive billions of foreign dollars into a market dealing with growing US-China trade friction.
The decision by FTSE Russell to include China's A-shares in its widely followed global benchmarks represents another win for the country's market regulator after the historic inclusion of mainland stocks in MSCI Inc's share indexes in June.
Market participants had expected the announcement by FTSE Russell, saying previous sticking points around capital controls and clearing and settlement were no longer issues.
FTSE Russell said in a statement that Chinese authorities had made "significant efforts to improve access for international investors."
Duan Shihua, general manager of Chinese index publisher Shanghai Changer Investment Management Consulting, estimated the FTSE inclusion could initially trigger 15 billion US dollars of foreign inflows into the market.
"If you don't add China - the world's biggest emerging market into your emerging market index, your benchmark would be defective, at least incomplete," he said.
Fresh Capital
According to FTSE, about 16 trillion US dollars is currently benchmarked to its indexes.
The inclusion of Chinese shares means that passive funds tracking FTSE's All-World and emerging markets indexes will buy yuan-denominated A-shares.
FTSE Russell said in its statement that it would assign China A-shares "Secondary Emerging" market status starting in June 2019.
Last month, FTSE Russell's chief executive officer, Mark Makepeace, told Reuters that FTSE could give a greater weighting to A-shares than MSCI if a "yes" decision was made.
Chinese brokerage GF Securities said that a higher weighting would mean FTSE could match bigger rival MSCI in terms of pulling money into China.
MSCI gave A-shares a roughly 0.8 percent weighting in its emerging market benchmark initially, triggering an estimated 18 billion US dollars of inflows. On Wednesday, MSCI said it would consider increasing Chinese share weighting in its indexes.
Fresh capital would help anchor China's stock market and ease depreciation pressure on the yuan, as China steps up moves to counter the destabilizing impact of an escalating trade war with the US.