By Gregor Stuart Hunter
Index provider FTSE has begun preliminary studies into whether
it will include companies with primary listings outside of their
home countries into its biggest benchmarks, potentially providing a
boost for stocks including Chinese Internet companies such as
Alibaba Group Holding Ltd. and Baidu Inc. which are traded on U.S.
exchanges.
The index provider is assessing whether to include companies
which trade overseas, but lack a domestic listing, in its
global-equity index series.
Index inclusion can funnel potentially billions of dollars into
certain stocks by compelling passive funds to hold them, and
changes to benchmarks are closely scrutinized by active managers
seeking to get a head-start on these flows.
The issue of overseas listings had been discussed for several
years but had been given fresh impetus by e-commerce giant
Alibaba's $25 billion initial public offering in September, said
Eddie Pong, a Hong Kong-based director of research and analytics at
FTSE.
"Alibaba, because of its size, triggered a significant debate,"
he said. The rule change wasn't being designed with any one
particular company or country in mind and should be applied in a
generic fashion, he added. Other companies with listings outside
their country of origin, such as Hong Kong-listed United Co. RUSAL
Plc, could also be affected by such a change.
Around $24 billion of passive capital tracks FTSE's China
indexes, Mr. Pong said.
The index provider isn't working to a specific time line, he
added, and meanwhile already provides access to overseas listings
of Chinese companies through some of its other, more specialized
benchmarks.
FTSE could announce its decision at any time, Mr. Pong added,
though it conducts index-reclassification reviews in March and
September.
MSCI, which oversees the most widely followed emerging markets
index, began a consultation in September last year on whether to
make a similar change to its rules. The index provider is yet to
make a decision.
Fund managers have put pressure on index providers to add
Chinese companies' overseas listings to their indexes because most
major benchmarks have a heavier weighting toward "old economy"
stocks in heavy industry, real estate and financial services,
instead of the "new economy" sectors such as technology,
pharmaceuticals and new energy which are expected to benefit from
the country's economic rebalancing.
Write to Gregor Stuart Hunter at gregory.hunter@wsj.com
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