FTSE Russell nudges China toward further market opening

SHANGHAI, March 19 (Reuters) - FTSE Russell is in active talks with Chinese regulators about reform measures that could help increase the weighting of Chinese onshore shares in its global indexes, a senior executive told Reuters.

The index provider will add eligible companies listed on Shanghai’s Nasdaq-style STAR Market to its global equity benchmarks for the first time on Monday, having included over 1,000 China-listed stocks, or A shares, since June, 2019.

Only 25% of Chinese stocks’ investable market cap is currently added to FTSE’s global indexes, meaning Chinese companies are underrepresented in the benchmarks.

Du Wanming, FTSE Russell’s director of Index Policy for the Asia-Pacific, said the index provider aims to increase that gradually to 100%, but that would require complicated reforms.

“We’re actively seeking market feedback and also talking to the regulators” on such policy changes, said Du at FTSE Russell, owned by the London Stock Exchange Group.

China has been taking bold steps to open its capital markets to foreign investors in recent years. But the latest push comes as Beijing is increasingly worried about contagion from financial risks in global markets.

Du said short- and medium-term goals include broadening the China-Hong Kong Stock Connect schemes -- a popular channel for foreigners to invest in Chinese stocks -- to include all A shares and aligning trading holidays. Eligibility for the scheme is a prerequisite for a stock to be included in the FTSE’s global indexes.

“The regulators and the exchange are actively working on the trading holiday alignment,” Du said, adding it would involve keeping northbound trading under Stock Connect open when the Chinese markets are operating but Hong Kong is shut for holidays.

She said the index provider also hopes to see China relax its 30% cap on foreign ownership of China A shares, which would naturally increase China’s weighing in the FTSE indices.

Du brushed aside concerns that Beijing will backtrack from capital markets deregulation amid heightened market volatility.

Top banking regulator Guo Shuqing said in March the government was “very worried” about a potential bubble bursting in foreign markets and was studying ways to manage capital inflows.

“I think they are still very committed to opening the market and surely they (will) do it with caution,” Du said.

The addition of STAR companies into FTSE’s global indexes also comes amid a savage global tech share sell-off but Du said market sentiment had little bearing on inclusion decisions.

Among the stocks to be added to the FTSE’s global indexes on Monday, 10 STAR companies will be included in the FTSE Global Equity Index Series (GEIS).

“The (STAR) market is of a significant size. You can’t ignore it,” Du said. “It’s what the investors want. They would like the index to represent the market.” (Reporting by Samuel Shen and Andrew Galbraith; Editing by Ana Nicolaci da Costa)