MSCI, a leading index provider, said on Wednesday that it has launched a new suite of China thematic indexes reflecting long-term, structural changes in China which may drive fund performance.
The 20 indexes span across three megatrend categories which are widely expected to affect economies and societies, including transformative technologies, society and lifestyle, and environment and resources.
“These indexes present a solid use case for active asset managers and fund sponsors as tools to benchmark actively managed strategies, as well as for providers of ETPs and structured products providing precision exposures,” Doug Walls, Apac head of index products at MSCI, told FSA.
MSCI’s global thematic framework and rules-based methodology identified 10 macroeconomic, technological and demographic trends fuelling China’s in order to construct the indexes.
The themes, which have China All Share and China A-Share versions, include disruptive technologies, future mobility, smart cities and energy efficiency.
“Unlike traditional, backward-looking investment approaches that focus on past winners, thematic investing reflects a future world that may be very different from the past,” said Walls.
MSCI starts by selecting stocks through its standard thematic index methodology, then applies additional liquidity screening to remove securities in the bottom quintile of the parent index by 12-month average daily trading value, according to Wei Zhen, head of Apac index solutions research at MSCI.
“We come up the final universe by ensuring a minimum relevance score of 50% is required for stocks selected in the bottom half of selected universe by market cap,” he said.
Clean tech tilt
China is in the second quintile in the world’s least-carbon-intensive equity markets’ ranking, although it is (along with the US) the world’s biggest carbon emitter, according to the latest Morningstar Sustainability Atlas report, which examines the corporate-level sustainability and carbon intensity of Morningstar’s 48 country-specific equity indexes.
“The main reason lies in their technology, consumer cyclical, communication-services, and healthcare tilts and minimal exposure to energy and utilities,” noted the report, which was released on Wednesday.
China’s leader Xi Jinping reaffirmed at last week’s Earth Summit that he expects China’s carbon emissions to peak before 2030 and achieve net-zero emissions by 2060.
The country accounts for 87% of assets in Apac climate-related funds designated by Morningstar.
The 10 largest climate-aware funds outside of Europe and the US are domiciled in China, and seven of these are clean energy/technology funds.
MSCI’s Walls believes that the thematic category will continue to experience very solid growth reflecting the rapid pace of structural change, so asset volumes [benchmarked against these indexes] will be “meaningful”.
“As the Chinese government has laid out its 14th Five-Year Plan focused on key megatrends driving domestic growth, investor demand for exposure to these opportunities is on the rise,” he said.
He expects the indexes will be used for the creation of new products and/or discrete capital allocations, rather than be used by existing funds, because thematic investing sits in a separate “philosophical category”.
Last week, MSCI said that it has partnered with Nasdaq-listed Royalty Pharma to launch new indices that aim to capture long-term, cutting edge themes that will disrupt the life sciences, biotechnology and pharmaceutical industry groups.
The indexes include:
MSCI China All Shares IMI Thematic Indexes
- MSCI China All Shares IMI Disruptive Technology Index
- MSCI China All Shares IMI Future Mobility Index
- MSCI China All Shares IMI Robotics Index
- MSCI China All Shares IMI Digital Economy Index
- MSCI China All Shares IMI Autonomous Technology & Industrial Innovation Index
- MSCI China All Shares IMI Next Generation Internet Innovation Index
- MSCI China All Shares IMI Efficient Energy Index
- MSCI China All Shares IMI Smart Cities Index
- MSCI China All Shares IMI Millennials Index
- MSCI China All Shares IMI Ageing Society Opportunities Index
MSCI China A Onshore IMI Thematic Indexes
- MSCI China A Onshore IMI Disruptive Technology Index
- MSCI China A Onshore IMI Future Mobility Index
- MSCI China A Onshore IMI Robotics Index
- MSCI China A Onshore IMI Digital Economy Index
- MSCI China A Onshore IMI Autonomous Technology & Industrial Innovation Index
- MSCI China A Onshore IMI Next Generation Internet Innovation Index
- MSCI China A Onshore IMI Efficient Energy Index
- MSCI China A Onshore IMI Smart Cities Index
- MSCI China A Onshore IMI Millennials Index
- MSCI China A Onshore IMI Ageing Society Opportunities Index