Access China


Index providers MSCI and FTSE have recently made announcements on the inclusion of China A shares in their respective global indices.


Consultation on a further weight increase of China A shares in MSCI Indices

The MSCI consultation outlines the following proposals:

  1. Increase the inclusion factor from the current 5% to 20% for large-cap securities in two phases in May and August 2019
  2. Add the Shenzhen ChiNext board to the list of eligible stock exchange segments in May 2019
  3. Add China A mid-cap securities with a 20% inclusion factor by May 2020

MSCI has cited the robustness of the Stock Connect scheme as a channel to access China A shares, and view the Daily Quota Limit and CNH liquidity as sufficient to address a higher inclusion factor than the current 5%. The quadrupling of the Stock Connect daily limit, a material reduction of trading suspensions and other improvements in market accessibility have prompted this consultation for an increase sooner than many had expected.

Source: MSCI, September 2018


FTSE will be assigning a Secondary Emerging Market status to China A shares from June 2019

FTSE announced that China A Shares available via the Northbound Stock Connect route will be assigned Secondary Emerging Market status, commencing with the FTSE Global Equity Index Series (GEIS) semi-annual review in June 2019. The inclusion will feature constituents from the FTSE China A Stock Connect Index, and will include securities across large-, mid- and small-cap segments. The implementation will take place over three tranches in June and September of 2019, as well as March of 2020.

FTSE has been reviewing the China A market access since March 2018, and cites the Stock Connect enhancements including the following as considerations:

  1. The four-fold increase in the Daily Quota Limit, which indicates a lesser likelihood of intra-day closures of the Stock Connect facility
  2. The Special Segregated Account (SPSA) arrangement allows for the facilitation of Delivery versus Payment (DvP) via the Stock Connect Northbound program
  3. No requirement for foreign investors to apply for a licence to trade China A Shares via the Stock Connect program, unlike the RQFII and QFII schemes


Schroders’ view

Implications from these index inclusion announcements on portfolio construction across our China equity range is marginal. This is because our bottom-up, active fundamental investment style sees us focusing on uncovering attractive stock ideas, but use indices in reference as we seek to deliver strong risk-adjusted returns for our clients.

However, the assessment that the accessibility of the China A share market points to significant progress is meaningful, although further progress and improvements are sought. With increasing foreign ownership and participation, this will continue to drive incremental changes, including further institutionalisation of the China A share market, and potentially encouraging better governance and standards. Our internal research had also previously started to observe a shift towards fundamental factors becoming more important in the domestic A share market since the launch of the Stock Connect scheme. This can be expected to continue as the market matures and continues to open up to outside capital. Northbound Connect, which is the money flowing from offshore to onshore, is now valued at USD 46 billion.

As active, fundamentally-focused stock-pickers, we view these as positive and constructive developments. The Chinese equity market holds for us a dynamic and compelling universe from which we can uncover many attractive investment opportunities and undiscovered gems, and one which is without doubt continuing to evolve. Recent market performance and sentiment has been very weak, offering potentially attractive entry points from a valuation perspective as well. Whilst there are multiple headwinds including domestic tightening and a slowing economy as well as challenges on the external trade front, the longer term structural positives for China remain compelling for investors looking to build up their China exposures for the long term.

Source: Factset, August 2018



Important Information
Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Opinions stated are matters of judgment, which may change. Information herein is believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, please refer to the relevant offering document.
The information contained in this document is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments.
Derivatives carry a high degree of risk and should only be considered by sophisticated investors.
This material including the website has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.


Our business is structured around a number of strategic capabilities, which combine to meet a variety of client requirements. Please visit the Strategic Capabilities - Emerging Markets page to discover how we help our clients capture the emerging market growth with confidence.

Contact Us

Level 33, Two Pacific Place,
88 Queensway,
Hong Kong
(852) 25211633
Online enquiry: Please complete the web form below and
we will reply as soon as possible.
Contact us