The rising internationalization of Chinese shares and bonds means China has become “too big to ignore,” as per FTSE Russell Managing Director of Global Markets Research, Philip Lawlor.
FTSE Russell kicked off the initial phase of its Chinese A-share inclusion on Monday, beginning with its Emerging Index. The move sees 1, 000 small, medium and large cap Chinese companies added to the index, representing initial net passive inflows of $10 billion of assets under management.
The second phase of inclusion is due in September with a third scheduled for March 2020. The total program is predicted to add $260 billion to FTSE emerging market indexes, and Lawlor informed CNBC’s “Squawk Box Europe” that China is “going to dominate emerging markets, in the same way, the U.S. dominates developed markets .”
U.S. Senator Marco Rubio recently followed President Donald Trump’s hardline trade war position on China, by writing to MSCI to request information on why it was increasing the weighting of Chinese company shares in its benchmarks.
Lawlor said CNBC that while FTSE Russell “might get a letter” from Rubio, the index provider “can look people in the eye and claim this is not being driven by any external political pressure,” on account of its “objective, very systematic and transparent” method to assessing the quality of markets.
FTSE Russell also offers China on a watch list for possible inclusion into its World Government Bond Index (WBGI). While this is not a guarantee of future promotion to the index, Lawlor stated such an event would be “very big” for global investors “in terms of the sheer scale and exposure” the bonds would have, in combination with the A-share inclusion.
“China is going from being something people could be watching, but not feeling they have got to get involved, to a market you’ve got to get involved in because if you don’t, it could be very costly,” he added.
The Shanghai composite index is up over 20% for the year to date despite ongoing uncertainty over the trade war between China and the U.S.