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Alex Chen, Ph.D., CFA Senior Research Analyst , Christopher Vass, Senior Product Manager
30 Jul 2018
As the mainland China equity market continues to open to overseas investment the ability for international investors to gain access to this large and growing market has become easier. The questions for international investors are whether they need to include China A shares in their existing China portfolios, and what to do with their existing holdings of overseas China? This paper highlights that to gain a complete exposure to China equities investors need to diversify across all the different China shares classes.
This article qualifies for 0.5 CE under the guidelines of the CFA Institute Continuing Education Program. We encourage CFA Institute members tologinto the CE tracking tool to self-document these credits.
China has shown strong indications that it is willing to open its market to international investors. The approval of QFII/RQFII licenses and quota has been increasing at a tremendous pace since 2011. The launch of the Shanghai-Hong Kong Stock Connect programme last year and the recent confirmation of a stocktrading link between Shenzhen and Hong Kong by the China’s State Council, has shown clear evidence that the Chinese regulators and stock exchanges are making significant efforts to improve the regulatory environment and trading mechanisms. An increasing number of investors are asking questions such as: When will China be included in global benchmarks? What can investors do to prepare for a possible inclusion? This paper aims to answer these questions and is intended for market participants as they prepare for China inclusion in FTSE’s global benchmarks. Section 1 and 2 describe the development of the China A-shares market and the milestones towards its globalization. The FTSE country classification system and the assessment results on China are discussed in Section 3. Section 4 outlines FTSE Russell’s solution to the China A-shares market changes. Conclusions can be found in Section 5.