Emerging onto the global market

Investors monitor stock prices at a securities company in Fuyang, Anhui province. China has shown a strong willingness to open its market to international investors. [Photo/IC]

For years, investment constraints and regulatory restrictions in the country have kept China's A shares away from any major global benchmark indexes. But changes in the market for A shares have started to change things.

FTSE Russell, one of the world's leading index providers, announced its transition to include A shares in its widely followed global benchmarks with the launch of two new emerging market indexes.

The move is expected to bring endorsement to and more confidence in China's financial market, as well as more opportunities for overseas investors.

Jonathan Horton, head of integration, governance and risk at FTSE Russell

The initial weighting in the FTSE Emerging Markets China A Inclusion Indexes will be around 5 percent and increased to 32 percent over time, according to a statement released at a briefing in Hong Kong.

"For global investors to accept China A shares in the major index series, the market has to be easily accessible for all. Previous objections to A-share inclusion were because this wasn't the case. Fund firms had to go down the fairly cumbersome route of Qualified Foreign Institutional Investors program to be able to access the mainland markets," Robert Davis, senior portfolio manager at NN Investment Partners, said.

China has shown a strong willingness to open its market to international investors, as shown by the opening of the Shanghai-Hong Kong Stock Connect program.

Launched in November, the program allows investors in each market to trade shares on the other market using their local brokers and clearing houses.

"I think feedback to the index providers has been that if the mechanics of the Stock Connect work and it opens an easy route into the A-share market, then it is fair for them to be included in the indices," Davis said.

Other clear evidence that Chinese regulators and stock exchanges have put in significant efforts to gradually open the market were the launches of the QFII/RQFII schemes.

QFII, started in 2002, is a program that allows certain licensed international investors access to the Chinese mainland stock exchanges using foreign currency.

The renminbi QFII, known as RQFII and started in 2011, is a modified version of QFII that facilitates foreign investment in the mainland via offshore renminbi accounts by using the Chinese currency.