FTSE Russell, one of the world’s largest index providers, said it will launch two transitional indices that include China A shares — a staggered approach that will bring local Chinese shares into its global emerging markets benchmark in two to three years.

    Expectations that yuan-denominated shares listed on the Shanghai and Shenzhen exchanges could make the cut have grown as reforms such as the Hong Kong-Shanghai stock connect program have helped open up China’s stock market.

    Chinese authorities have lobbied hard for the inclusion in global benchmark indices which could prompt billions of dollars to pour into China stocks over time, but some of the world’s biggest fund managers oppose the move due to investment constraints in the country.

    “FTSE have offered a half-measure and that’s not completely surprising, given the intransigence with which a number of major index users have reacted to the idea of China A share inclusion in global benchmarks,” said Michael McCormack, executive director at Shanghai investment consultancy Z-Ben Advisors.

    The FTSE announcement comes ahead of a June 9 decision on China A share inclusion by rival MSCI Inc., owner of the world’s most influential emerging markets benchmark, against which some US$1.7 trillion in funds is tracked.

    “Some investors want to move much quicker than others,” said Mark Makepeace, CEO of London Stock Exchange Group-owned FTSE Russell.

    “The biggest funds want to move earlier, it’s more complex for some others and they will want a longer period of time to manage this change,” he said.

    Concerns over tax, capital mobility, clearing and settlement remain key barriers to inclusion and the two new indices would merge with the standard FTSE emerging markets index when China shares meet the provider’s criteria, he said.

    The indices will be called FTSE Emerging inclusion indices and will have an initial weighting of 5 percent for China A shares. (SD-Agencies)