Preparing for China’s Inclusion in Global Benchmarks

Abstract

The China A-shares market has expanded tremendously and experienced several key changes in the last two decades. Recent revisions of the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) programs, together with the introduction of the Shanghai-Hong Kong Stock Connect program, are manifestations of the effort of Chinese authorities to open the Chinese domestic capital market to international investors. These developments have led index providers to consider the inclusion of China A-shares in their global benchmarks. This article provides a detailed discussion on these breakthroughs and highlights the major criteria that the China A-shares market has to meet in order to be eligible for a possible inclusion. This article also provides a roadmap on how to determine the China A-shares allocation in a global benchmark in order to represent the true opportunity set for international investors.

TOPICS: Technical analysis, exchanges/markets/clearinghouses, emerging