(Yicai Global) Sept. 27 -- Foreign capital flows intoChina's yuan-denominated domesticsharesseemsirreversible as the world's second-largeststock index compiler unveiled plans toinclude A-sharesin key benchmarks.

Better known asFTSE Russell, London-basedFTSEInternational made the announcement today, the day after MSCI, the No.1 compiler, said it mayexpand itsA-shareinclusionfactorto 20 percent from 5 percentfollowing a reviewnext year. MSCIalso proposed includingtheShenzhen Stock Exchange's Growth Enterprise Market, or GEM,as aqualifyingexchange. It will likely also consider listing mid-cap stocks beforenext May,the New York-based companyadded.

"MSCI indexingrules have rejectedGEM stocksout of handfromits index pool,"saidOu Yangli,Huaxin Asset Management's deputy general manager and director oftheCFA China Quantitative Specialists Committee. "If the above MSCI suggestions are reviewed and passed,GEMstockswill possibly be accepted bytheMSCI indexcompilingrules after May 2019."

These developments are unfolding against the backdrop of China increasing the number and extent of its cross-border equity trading programs with other countries and regions. The much-anticipated London-Shanghai Stock Connect is expected to open before the end of this year.

MSCI used to includea country'sbig-and mid-cap stocks together, Chief Executive Henry Fernandez told Yicai Global in June. The rejection of A-share mid-capswas partly becausetheemerging market index's stock counts would haverisento about 1,200, of which 600would have beenChinese.

Foreign investorswould have had difficultykeepingup with the pace of learningand studyingA-share companiesand probably lackthe capacity to cover so many firms in their research.Both MSCI and brokershad totake these factors into account, Fernandez added.

The strong desire on the part of overseasinvestors to get into theA-share marketwill not change in spite of heightened turbulence and persistent externaluncertainties.TheGEMboardwill likely bottom out at between 1,000 and 1,200 points while the second half's overall profits will not be significantly lower than the first half, Wu Zhaoyin, Avic Trust's director of macro-strategy, told Yicai Global.He expects a rally in the fourth quarter.

Editor: Ben Armour