FTSE Studying Include Companies With Primary Listings Overseas Into Its Biggest Benchmarks -- Update

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 [e-mail]

Access Investor Kit for Baidu, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US0567521085

Subscribe to WSJ: http://online.wsj.com?mod=djnwires