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Feb 26, 2021

Star Market companies set for passive inflows following inclusion in Chinese and global indexes

Major benchmarks like FTSE Emerging Index will now have exposure to China’s booming growth board

FTSE Russell has confirmed it will add companies from China’s Star Market to its Chinese and global indexes for the first time, paving the way for more international investment to flow to the red-hot growth board.

Following a semi-annual review, the firm said 50 Star Market companies will join its FTSE Global All Cap China A Inclusion Index and 11 will enter the FTSE Global Equity Index Series (GEIS). The additions will be effective from March 22.

The changes should see $100 mn in passive inflows to Star Market companies, says FTSE Russell. Issuers will gain exposure to benchmarks including the FTSE Emerging Index, which is tracked by around $140 bn in assets.

The update follows a consultation last year that found ‘strong client support’ for the inclusion of Star Market names, although concerns were raised about high volatility during A-share IPOs.

Launched in 2019, Star Market offers a place to list for fast-growing Chinese companies in the technology and science sectors. Unlike on the main boards of Chinese stock exchanges, there is no need for approval from the main securities regulator and listing requirements are much lighter. 

The new approach has proved highly popular and last year Star Market accounted for 47 percent of all capital raised in the A-share market, according to data from EY. 

Given the strong demand for companies in the ‘new economy’, shares often jump dramatically on debut. Last year, the average first-day trading gain on Star Market was 187 percent, says EY.

The ability of international investors to trade Star Market companies received a boost earlier this month when constituents became eligible to join the Stock Connect program, which links stock markets in mainland China with Hong Kong.

Stock Connect is a popular way for international investors to gain access to mainland securities. Inclusion in the trading program is also part of the criteria for some global index products, such as GEIS. 

The addition of Star Market ‘to our global equity benchmarks is a key development of China’s capital markets, enriching the investment opportunity set for foreign investors,’ says Jessie Pak, managing director at FTSE Russell, in a statement.

‘We received positive client feedback during the consultation process with market participants confirming they were in favor of Star Market inclusion in our global benchmarks.’