Global index provider FTSE has teamed up with HSI International, the sponsor of the Hang Seng Index, to provide a new suite of regional stock indices aimed at derivatives traders and retail fund managers.
The FTSE/Hang Seng Asiatop Index will include the region (ex-Japan)'s top-30 capitalized companies to capture 60% of the universe's market cap, with each stock capped at 25% of the portfolio, says Graham Colbourne, chairman of FTSE Asia Pacific. One notable difference in Asiatop is that it includes HSBC, which is not in MSCI's Hong Kong Index (although it is in MSCI's Hong Kong+ Index).
But that decision reflects the goal of the vendors to establish Asiatop as a tool for derivatives traders and the regionÆs retail market, both markets which have a provincial focus and see stocks such as HSBC as integral to the region.
Says Colbourne: "We donÆt see large defined-benefit schemes using this as their benchmark." Rather, as an array of derivative products such as futures contracts are launched against Asiatop, fund managers in Hong Kong and Singapore with mandates for regional equities û including institutional mandates û will trade them. That is why Asiatop deliberately restricts itself to only large, liquid names. "ItÆs a useful tool rather than a benchmark," he concludes.
One quirk is that Malaysia is excluded from the list of eligible countries. Colbourne says traders had warned FTSE and HSI International of their concerns about Malaysia's liquidity and experience with capital controls. The vendors decided that while excluding Malaysia was a problem for some of their sector indices, Asiatop could get by without one or two Malaysian names.
FTSE and HSI International have assembled a review committee chaired by Stuart Leckie, regional chairman of Hewitt Associates, to oversee the daily management of the indices, and its first task when it meets in September will be to consider admitting Malaysia.
Other committee members include KM Cheung from Hang Seng Investment Managers, Todd Kennedy from Merrill Lynch, Mark Konyn of Dresdner RCM Global Investors (now part of Allianz), Justin Pascoe of State Street Global Advisors, David Ruan of New Alliance Asset Management, Donald Skinner from CLSA, Grahame Stott of Watson Wyatt and Peter Wong from Deloitte Touche Tohmatsu.
In addition to Asiatop, FTSE and HSI International are also launching a series of sector indices for Asia û again a move aimed at the retail market, where sector investing is hot. Institutional investors have shied away from this asset class, although in part due to a lack of benchmarks. Nonetheless, the concept of sector investment is picking best of breed globally, so restricting sector investment to just one region is unlikely to appeal to institutions. But local retail buyers in Hong Kong and Singapore may like the idea. The partners are launching sector funds for every sector covered by FTSE globally except for pharmaceuticals, as Asia has virtually no such industry.
All indices follow FTSE's global practice of adjusting for free float and capping stocks to reduce concentration on a handful of names - although the sector indices are extremely narrow, with one dealing with resource and energy companies having only six constituents.