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Unlike CSIÆs traditional suite of capitalisation-weighted products, the new index is weighted based on the individual stocksÆ market fundamentals, valuation and estimated growth. The index is initially customised for proprietary use for Everbright Securities, a local brokerage in China.
For back-testing purposes, CSI has retraced the model portfolio back for three years and marked December 31, 2004 as its initial day with a starting point of 1,000 points. Based on the index's current portfolio, estimates suggest it has returned 26.58% over the past 12 months and 226% since its pre-modelled inception.
As of July 15, its average price-to-earnings valuation was around 14 times 12-month forward earnings. The index will go live on August 1. Aside from being the first fundamental index in China, it also marks CSIÆs first foray in product customisation for onshore clients in China.
Fundamental indices are still in an infancy stage in China, says Ma Zhigang, CEO at CSI in Shanghai. Information disclosure and a lack of history can be a challenge to constructing these indices.
Index providers in China have only just begun the transition from a role of pure information compiler to actively raising investor interest in ETF licensing and customised portfolios.
While China only has about 30 key indices today, there are more than 30,000 globally. The indexing market in China still has a long way to mature, Ma says, and his company is focused on beefing up its product range, construction standards and competitiveness.
Ma says the company has referenced index construction methodologies of foreign competitors, including MSCI Barra, FTSE, Dow Jones and S&P, in identifying further innovations.
To date, CSI compiles 24 indices under the CSI brand, another 24 indices for the Shanghai Stock Exchange, plus 10 more for the Shenzhen Stock Exchange. CSI already has a suite of sector-based indices and has most recently diversified into theme-based investments, such as corporate governance and qualified domestic institutional investor (QDII) investments.
Ma says he wants to see the company further consolidate its indexing capabilities under its flagship range. Looking ahead, introducing more indices for alternative asset classes, ETF investments and lining up additional relationships with international fund houses and regional bourses are also among his plans.
Ma says he wants to raise CSIÆs profile in Asia. In order of priority, CSI is working on expanding in Hong Kong, Japan, Korea, Taiwan, Singapore, India, Australia and Vietnam.
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