China A-Share Inclusion – An Update One Year Later

As we mark the one-year anniversary of the initial inclusion of China A-shares in S&P DJI’s global benchmarks, it seems an opportune time to provide an update on key developments relating to A-share inclusion and to examine the impact that A-shares have had on the composition and performance of the S&P Emerging BMI over the past year.

Understanding the A-Share Inclusion Process, and What to Expect Next

Effective Sept. 23, 2019, eligible China A-shares accessible via Hong Kong-Shanghai Stock Connect or Hong Kong-Shenzhen Stock Connect were added to S&P DJI’s global benchmarks at a 25% reduced inclusion factor—meaning each company was represented at one-quarter of its float market cap weight.

Following a consultation with market participants earlier this year, S&P DJI announced that A-shares listed on the ChiNext Board of the Shenzhen Stock Exchange that are also accessible via Stock Connect would be eligible for the S&P Global BMI and other benchmark indices as of the September 2020 reconstitution. These additional ChiNext-listed securities represented an additional 1.0% weight added to the S&P Emerging BMI at the September 2020 reconstitution.

While we are not currently proposing an increase in the 25% partial inclusion factor nor any additional changes to eligibility requirements, S&P DJI’s 2020 Country Classification Consultation provides an overview of recent steps taken by Chinese authorities to improve accessibility to A-shares, as well as key remaining challenges cited by institutional investors. These challenges include relatively low foreign ownership limits, daily trading limits on Stock Connect facilities, and a lack of full alignment between trading days of Stock Connect and the underlying Chinese exchanges. The consultation invites feedback as to whether S&P DJI should consider proposing any changes to its treatment of A-shares and what additional steps need to be taken in order to consider increasing the inclusion factor or expanding eligibility beyond securities accessible via Stock Connect.

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