July 12, 2017 / 8:31 AM / a year ago

FTSE Russell still cautious on A-share inclusion as investor concerns linger

BEIJING, July 12 (Reuters) - Investor concerns over China’s capital controls and an absence of hedging products could see FTSE Russell again delay the inclusion of domestic Chinese shares in its global Emerging Markets Index at its annual September review, a top company official said.

Donald Keith, FTSE Russell’s deputy chief executive, said last month’s decision by rival index provider MSCI Inc to add a selection of mainland-listed China “A-shares” to its Emerging Markets Index has little impact on FTSE Russell’s process.

“A-share inclusion still divides international investors. The key thing for us is to go at the pace (they) want to go,” he told Reuters during a visit to Beijing last week.

Key issues for foreign investors include restrictions on repatriation of funds, availability of derivative tools - such as futures - that would allow investors to hedge their risk, and widespread stock suspensions, Keith said.

China’s stock market crash of 2015, when more than 50 percent of mainland companies halted trading in their shares, shocked quite a lot of international investors, Keith said. “Inevitably there’s a lag effect. It takes a while for that to wash through their collective memory.”

Chinese companies, through offshore listings and foreign currency denominated “B” shares, already account for 24.7 percent of the FTSE Emerging All-Cap Index. Inclusion of “A” shares would initially raise that percentage to 28.4 percent.

Keith estimates that about $30 billion has been deployed through various FTSE Russell China index products, which include a range of separate A-share indices, as well as an index tracking Chinese shares that can be traded through the Hong Kong-Shanghai and Shenzhen Stock Connect schemes.

Despite being cautious on adding A-shares to its Emerging Market Benchmark, FTSE Russell considers China to be of “key importance” and plans to build up its research and support staff in anticipation of continued market opening, Keith said.

He estimated the firm will increase related headcount over the next two years to as many as 25 people from about five currently. (Reporting by Matthew Miller; Editing by Christopher Cushing)

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