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China Stock Market–A Shares

Mainland-listed equities traded in Renminbi, known as A shares, are currently excluded from global indices as they are not freely accessible by the global investing public.  The existing China representation within those indices is largely via H shares, which are Chinese securities listed in Hong Kong.

Market capitalisation for China A shares is about $4T, or 13% of the MSIC Emerging Markets Index.  The existing H shares weighting contributed 16.8% to MSCI Emerging Markets Index.  In June MSCI announced that it had started reviewing A shares for potential inclusion in the MSCI Emerging Markets Index. If that were to take place, China could take up almost 30% of MSIC Emerging Markets Index.  However, the major hurdle to include China into MSIC Emerging Markets Index is the capital mobility restrictions.

Repatriation of capital requirements for QFII scheme is very stringent.  It requires a one-month wait, although weekly repatriation is possible with dedicated open-ended China funds.  In the RQFII scheme, daily repatriation is allowed.

For the past 18 months, China had further open up A shares market under the QFII and RQFII programmes.  On the QFII, the overall quota was lifted in April 2012 from $30bn to $80bn, then was almost doubled in July to US$150bn.  The foreign ownership limit has been increased from 20-30% and the application process for a QFII license has been streamlined.

On the RQFII, not only has the overall quota been significantly increased from RMB70bn to RMB270bn, but the programme has also been expanded beyond Hong Kong to Taiwan, London and Singapore.

At the moment, to access China’s capital market – A shares, foreign investors must rely on the qualified foreign institutional investor or the renminbi-qualified foreign institutional investor schemes (QFII).  So far, only 3 QFII participants – the Hong Kong Monetary Authority, Norway’s Norges Bank and Singapore’s Temasek Fullerton Alpha – have been granted allotments above $1 B.

Reference

Financial Times, Kylie Wong, 2013-11-15, “China’s A Shares Poised to Go Global”