• Ernie Diaz

Back to the Futures

The story behind the almost doubling of foreign held Chinese equities since 2017, from 2.4 to 4.2 trillion RMB, is one of quid pro quo: top equity index providers (MSCI, S&P Dow Jones, FTSE Russell) included Chinese A-shares in 2018, In return, Chinese regulators trimmed the paperwork on their stock and bond connect programs, to the point that Qualified Foreign Investor programs look Kafkaesque in comparison.

But are foreign institutions happy with the pace of progress? Well, end of 2019 had foreign-held Chinese shares at 5.8% of total, compared to, say, South Korea's 34.7. 

"Foreign investors want more risk-management tools," says Jimmie Jeremejev, "particularly index future and options contracts. Until that happens, foreign indexes won't be weighting towards more Chinese shares"

"There are other challenges for foreign investors," adds Edward Lehman. "They can't own more than 10% of a Chinese publicly traded company individually, or 30% combined. It's hard to see regulators giving giant overseas funds the access they want in the near term."

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