ChiNext: Inclusion of rising stars in FTSE Russell's China A-shares indices

Maxine Elliott    Penny Ning Pan, Director, Product Management, FTSE Russell
22 May 2019
Categories: Investment Management, Investor Education, Equity Investments

Country or region: China

ChiNext stocks have been part of FTSE Russell's China A Shares inclusion process. Penny Ning Pan, Director of Product Managment, FSE Russell, explains why.

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Back in September of 2018 FTSE Russell announced the inclusion of China A Shares into its indexes—a move that takes effect in June. The FTSE Global Equity Index Series (GEIS) China A implementation opens up a range of China stocks to investors globally. One interesting detail about it is that ChiNext stocks will be included. FTSE Russell was the first international index provider to announce the inclusion of ChiNext stocks in global indexes. The firm opted for ChiNext inclusion at the outset as it believes they are an important component of what it means for international investors to access the China equity markets.

To fully grasp why ChiNext stocks are included, it’s first important to understand what they are. Created in 2009 by the Shenzhen Stock Exchange, the ChiNext Board has been referred to as “China’s NASDAQ” and is designed to attract listings from innovative growth-oriented Chinese firms—including many high-tech companies with listing standards that are less stringent than the Shenzhen Stock Exchange Main and SME Boards. The ChiNext Board has grown significantly over the past 10 years, and today it comprises 751 listings with a total market cap of over $800B, representing nearly a quarter of the Shenzhen Stock Exchange, as shown in the table below:

Source: Shenzhen Stock Exchange, as of April 15, 2019

ChiNext stocks are currently accessible to QFII and RQFII allocation holders, and to foreign institutional investors (but not retail) through the Shenzhen-Hong Kong Stock Connect scheme.

As an important component of the China A Shares opportunity set, FTSE Russell is adding ChiNext large, mid and small cap stocks to the FTSE GEIS and derived indexes. The indicative data at the end of March 2019 suggests that a total of 141 ChiNext stocks are poised to join the FTSE Global All Cap Index, representing about $400B in total market cap, or $25B in net market cap (at a 25% inclusion factor).

A common misconception is that companies listed on the ChiNext Board are start-up companies and fledgling in nature. If we take a closer look at ChiNext Board companies, this is easily proven untrue. As the ChiNext board has grown over the past decade, so, too, have the companies it comprises. Today, the ChiNext Board is home to many large and mid cap stocks, in addition to smaller firms. For example, in FTSE Russell's March 2019 index review, ChiNext stock Wens Foodstuff Group joined the FTSE China A50 Index—a mega cap index composed of the 50 largest companies listed on the Shanghai and Shenzhen Stock Exchanges.

The presence of a mega cap company on the ChiNext Board is telling for its significance in the Chinese equity market that’s available to foreign investors. And indexing the ChiNext market is nothing new for FTSE Russell. The firm launched the FTSE China A Innovative Enterprises Indexes—focusing on ChiNext stocks—in December 2016, and added ChiNext stocks to its broader FTSE China A Indexes in March 2017. The inclusion of this market segment in the FTSE GEIS China A Shares implementation plan is a further acknowledgement of its relevance.


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