Index: Global players can now access A shares through FTSE

of view, the mechanism will allow them to expect the proportional increase of the A-shares allocation in the benchmark based on up-todate approved quota information,” said Jing Hu, investment manager at Arbuthnot Latham & Co, a private bank in London.

Davis added: “Any weighting has to be consistent with the total amount of investment allowed by foreign investors through the QFII/ RQII allocations.

“If the allocations were used up in full before funds could match the index weightings, there would obviously be a problem.”

Andy Seaman, partner and chief investment officer at Stratton Street, a Londonbased fund management and advisory company, said that although access to China’s capital markets is still largely controlled by quotas, these are likely to be phased out.

Whether to add China A-share stocks to global indexes has been a major challenge for index providers. A-share inclusion could force many active and passive fund managers to pour billions of dollars into the Chinese stock market, with the potential of drawing large sums away from other small emerging markets.

“In the short term, the impact may be limited, but in the long run, a reallocation to China will inevitably lead to reduced allocations elsewhere, and these markets may suffer more negatively from reduced portfolio allocations than China may gain from increased reallocation by investors,” Seaman said.

Industrial experts and analysts say the inclusion will bring opportunities to the Chinese financial market, as well as potential challenges.

For overseas investors in China the future is exciting, but not without risks.

“The direction of reform in China makes clear that in order to transform the economy from its old-fashioned supply-led model to a more sustainable demand-and consumption-driven base, China needs foreign capital and needs to address some of its historic imbalances,” Davis noted.

Justin Stewart, co-founder of Seven Investment Management, says FTSE’s move will help increase liquidity in Chinese stock markets, adding: “More inflow will help better price formation and thus create greater confidence in the prices being seen. Also, more inward investment will justify more company and market research, which can only improve the market by increasing confidence.

“Such research should also expose weaknesses in companies. But this, too, I see as a positive as it creates a greater opportunity for companies to take action and to be less covert in their disclosure.”

Laurie Pinto, co-founder of NSBO, a London-based investment bank with a focus on China, noted that the announcement from FTSE will have positive effects on China’s stock market.

“The process of openingup has happened much faster than anyone has anticipated. China has long recognized the benefit of tapping foreign capital — most of its State-owned enterprises listed in Hong Kong tap into foreign investors,” said Pinto. “China now wants another round of foreign money to help fund its economic reform. The big question is, can China’s legal framework, corporate governance and so forth improve quickly enough to appease global investors and warrant the inflows?” Pinto added.

China now wants another round of foreign money to help fund its economic reform.”

Laurie Pinto, co-founder of

NSBO

The inclusion of China will be a very big change for markets globally, but it will help some of their clients who want early access to the Chinese market, according to Jonathan Horton, head of integration, governance and risk at FTSE Russell.

“Three major developments that have been important to us in terms of our views on China are the expansion of the stock market, regulatory improvements, and easier market accessibility for international investors.”

Horton said Chinese stocks have met seven of FTSE’s nine criteria for inclusion in emerging market indexes, except for one on capital mobility and another on settlement and clearing.