Aug. 26 (NBD) -- Global index complier FTSE Russell announced on Saturday that it would raise the weight of Chinese A shares in one of its benchmark index FTSE Global Equity Index Series, as scheduled, to 15 percent from 5 percent.

The change will take effect on September 23, with 87 A-share stocks to be newly included. According to Sinolink Securities, this move will bring about 4 billion U.S. dollars of passive fund inflows to the A-share market.

Photo/Shetuwang

Successive inclusion of A shares into global indexes 

National Business Daily (NBD) found that this is the second phase of FTSE Russell's three-stage step to incorporate A shares. The inclusion of A shares was initiated from June 24, 2019, when the factor was set at 5 percent, and the additions will be completed in March next year, with the weight of A shares logged at 25 percent. At that time, A shares will represent 5.5 percent of the FTSE Emerging Index. 

FTSE Russell's CEO Mark Makepeace previously revealed the company aims to fully integrate A shares, which requires increments in the aggregate quota levels of QFII (Qualified Foreign Institutional Investor) and RQFII (RMB Qualified Foreign Institutional Investors), availability of DvP (delivery versus payment) via QFII and RQFII, etc.

Apart from FTSE Russell, other global index providers also started to include A shares, NBD noticed.

MSCI on August 8 announced it would increase the inclusion factor of China's large-Cap A shares from 10 percent to 15 percent, and the adjustment will come into force on August 27.

S&P Dow Jones Indices will make public the A-share inclusion into its global benchmarks on September 6, 2019, as planned last year, with the inclusion factor to be 25 percent. The change is scheduled to take effect on September 23.

A-share market to see more foreign capital inflows 

Impacted by the inclusion of A shares into global indexes, the A-share market will attract investment worth 70-125 billion U.S. dollars this year, predicted Morgan Stanley. 

Industry insiders expected the influx of foreign investment into the A-share market to be accelerated.

Statistics showcased that in 2019, the net inflow of foreign capital into the A-share market has been recorded over 97 billion yuan as of June 25. "It's only a start for foreign capital inflows," forecast Xu Tao, investment manager at APS Asset Management Pte Ltd. 

Xu explained that the amount of global debt with negative yields recently ballooned to 16 trillion U.S. dollars, nearly doubled that during the same period of 2018, but the stock prices of many overseas firms with sluggish growth or unprofitability are still hitting record high, which showed the market's willingness to take risks for potentially-rewarding assets. Xu deemed that it's only the beginning for foreign capital to flow towards well-performing Chinese equities. 

A whopping amount of foreign capital hasn't entered the A-share market yet, and a 5-percent of investment portfolio from overseas sovereign wealth funds will present a remarkable increment in China, Xu observed, expecting that the more foreign capital to flow to China.

A research report released in June by MSCI unveiled China's weight in the portfolio of global and emerging-market funds is at a low level, making up only 4 percent of the global cap-weighted index. According to the index complier's backtest, investors who top up the China allocation within emerging-market index will see improvements in the sustainable growth rate or a reduction in the total portfolio risk profile.

Email: gaohan@nbd.com.cn