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FTSE Russell’s latest review ends with China A-shares still on watch list

Investors at trading terminals in front of electronic stock boards at a securities brokerage in Shanghai.

FTSE Russell’s latest annual country classification review ended with China’s A shares still on the firm’s watchlist for inclusion in its benchmark indexes, even as equity markets in Poland and Kuwait won upgrades.

Foreign investor access to China’s A-shares market continued to improve but that progress fell short of garnering passing marks for segments of FTSE Russell’s “quality of markets matrix” ranging from treatment of minority and foreign shareholders to operational factors such as the ability to short or lend stocks, according to a FTSE Russell news release.

A FTSE Russell spokesman said in a telephone interview that discussions with the firm’s asset owner and money management clients showed “broad consensus” that China A shares aren’t ready yet for full inclusion in benchmark indexes.

To accommodate clients eager to invest in A shares now, FTSE Russell introduced A-shares inclusion indexes last year, with an initial weighting of 5% in global emerging markets — well above the initial weighting of less than 1% that rival MSCI said in June it would set for A shares in its global emerging markets index, starting in June 2018.

Still, the firm’s CEO, Mark Makepeace, said in the news release the China A-shares market “continues to make progress.” He went on to say he anticipates “growing use of our FTSE Global China A Inclusion Indexes prior to China A shares entering our core global benchmarks.”

For now, the FTSE Russell spokesman said Vanguard Group has been the only major client to adopt those indexes.

Elsewhere, FTSE Russell said Poland would be promoted to “developed” market from “advanced emerging” in September 2018, and Kuwait would gain an initial classification as a “secondary emerging” market.

The spokesman said the upgrade to advanced emerging from secondary emerging leads to more of a country’s stock market being included in the FTSE Russell indexes.