Danny Dolan (pictured), managing director of asset manager and ETF provider China Post Global has commented on the decision to include China’s A-shares in the global FTSE Russell benchmarks.
Dolan says: “Despite current trade war threats, China is a long-term megatrend and investors know that. The decision of FTSE Russell to include Chinese A-shares in their global indexes reflects the growing demand from international investors for exposure to China, as we see foreign investment increase and large institutional allocations become more commonplace.
“This inclusion is a further concrete step in the ongoing integration of the Chinese stock market into the global financial system, following the historic inclusion of A-shares in the MSCI Emerging Markets Index earlier this year. The Chinese government has accelerated the opening up of the market by addressing issues around capital controls and clearing and settlement, resolving previous concerns and ensuring that China’s importance to the global economy cannot be ignored anymore.
“Together with the highly anticipated Shanghai-London Stock Connect, which is likely to start trading by the end of the year, and the existing Hong Kong Stock Connect program, the inclusion of A-Shares in the FTSE Russell benchmarks will step up foreign investment into China. However, given the lack of familiarity with the Chinese equity market among many international investors, we believe that diversified and innovative China funds could be a better fit for certain strategies. For passive investors, for instance, taking a selective approach to stock screening, such as smart beta, rather than embracing the market as a whole, can help mitigate the effects of volatility and leverage which are still a concern for many international investors.”