Chinese stocks will be added to a key benchmark run by a unit of the London Stock Exchange Group next year, further opening up mainland equities to international investors.
FTSE Russell said that upon completion of an initial phase next June, yuan-denominated shares will make up around 5.5 percent of the FTSE Emerging Index.
US-based MSCI introduced Chinese shares to its indices earlier this year and on Tuesday said it would consider raising China’s profile in its Emerging Markets Index over the next two years to 3.36 percent, from the current 0.71 percent.
Such benchmark indices are used by institutional investors to determine which shares around the world to add to their portfolios, and the growing embrace of Chinese shares is expected to eventually lure billions of dollars of foreign investment into the country’s markets.
Inclusion has been sought by China’s leaders, who have taken a number of reforms over the years to open up to foreign access in a drive to internationalise and develop Chinese capital markets, and increase its global financial footprint.
Attracting more investment from global funds is also is seen as a way to help tame often volatile mainland equities markets, which are often influenced by the buying patterns of tens of millions of less-sophisticated individual domestic investors.
FTSE Russell framed its move as a vote of confidence in China after ‘the long-term reforms that have been implemented over the past few years’.
It said the 5.5 percent inclusion represents ‘initial net passive inflows of $10 billion of assets under management’.
FTSE will also add Chinese government bonds to its watch list for possible inclusion into indices.
China’s benchmark Shanghai stock index is the world’s worst performing this year, tumbling around 15 percent as it is hit by a slew of factors including the China-US trade war and weak economic data.
The index was down slightly in morning trade Thursday.