Asia continues to lag other regions for integrating ESG principles with investing; better data and stronger regulatory requirements will help institutional investors, market observers say.
The Macquarie and Rogers China Agriculture Index is an investable index that tracks changes in the price of a basket of agricultural commodities most commonly consumed in China. Having posted a return of more than 11% for the month of December, the index outperformed most regional equity markets and other agricultural indices. Macquarie Funds, the asset management arm of AustraliaÆs Macquarie Group, is launching the index now that it has a track record of two months since its creation in November.
The index is made of exchange-traded futures contracts on physical commodities that aim to capture the price impact of current and potential changes in ChinaÆs food consumption patterns. The index allows investors to keep a daily track on the price changes of the agricultural commodities basket. It also allows fund managers and other providers to issue financial products which are linked to an innovative and topical theme.
ôApart from being the worldÆs most populous nation, China is one of its fastest growing and as such, Chinese dietary patterns should play an influential role in determining the prices at which agricultural produce is exchanged.ÆÆ says Harry Krkalo, Singapore-based head of retail funds sales for Macquarie Funds in Asia. ôDeveloping an investable index which effectively tracks the price changes of commodities with reference to the quantities of each agricultural product consumed in China is an innovative and exciting way to invest in the sector.ö
The index is the first one manufactured in Asia by Macquarie Funds, which is in the process of building its business in the region. As of end-September, the fund house had assets under management of $53 billion worldwide, including $1.5 billion sourced from investors in Asia.
ôMacquarie is a leader in trading commodities futures. Jim Rogers has worked with other groups before but nothing specifically with China,ö says Krkalo. ôSo when we put those bullet points down, a Chinese consumption-base product made sense and it is an interesting first index for us to roll out.ö
In December last year, most major Asian equity indices including Nikkei 225, Hang Seng, MSCI Singapore, Kospi 200 and MSCI Taiwan posted positive returns, the largest of which was the Kospi 200 with a performance of around 6.2%. Commodities indices outperformed equity markets last month, however, with the Dow Jones-AIG Agriculture Total Return Index and the Macquarie and Rogers China Agriculture Index posting returns of approximately 9.8% and 11.6% respectively.
Macquarie Funds plans to launch, in the near future, a series of funds linked to the Macquarie and Rogers China Agriculture Index in the Asian region in addition to issuance in Switzerland.
ôThe investing public is still worried about where to put their money so any product launch for the next six months is going to be a carefully thought-out launch,ö Krkalo says. ôBut this commodities index is interesting for both short-term and long-term reasons.ö
Agriculture commodities have been sold off too heavily considering the demand for these goods, Krkalo says. The short-term opportunity stems from attractive valuations and, in the long-term, this asset class is expected to add value to investorsÆ portfolios, he adds.
Commodity tracking indices have generally been calculated based on supply side factors and commodity weightings are based on the global production. The Macquarie and Rogers China Agriculture Index is unique in the sense that component weightings are determined using actual and forecast data on consumption in China.
ôMacquarie is one of the largest traders of agricultural commodities globally and Jim Rogers is one of the worldÆs leading commodity investors so itÆs a great partnership,ö says Matthew Long, Sydney-based executive director of Macquarie Funds.
Indeed, Rogers û who founded Quantum Fund with George Soros in 1970 and is now an independent investor û is best known these days for being a long time bull on China and commodities.
ôI bought more (commodities) recently. I know that one of the few bull markets that I can see going up in the next five to 10 years is in agriculture,ö says Singapore-based Rogers. ôYou may not have bull markets in cars or financial institutions or lots of other things but I know the world is not going to stop eating.ö
After watching commodities markets suffer broad-based and drastic selling for most of the second half of 2008, a committee made up of Rogers and the treasury and commodities team in Macquarie Funds created the index, which went live in November.
ôThe index methodology is a refreshing way to approach investing in commodities and over time we believe that consumption patterns, particularly those of China, will increasingly influence agricultural prices. We expect the index to perform quite differently from existing agricultural indices,ö Long adds.
The top three commodities in the index in terms of weightings are wheat, corn and soybean. The rest are coffee, cocoa, sugar, rice, palm oil, rubber, orange juice, soybean meal, soybean oil, cotton, canola and milk.
The Index incorporates the spot return of the underlying commodity contracts plus the discount or premium obtained by rolling over the contracts as they approach delivery. It is calculated on both an excess return and total return basis. Index constituents and weightings are potentially re-assigned annually and intra-annually in exceptional circumstances to account for current and potential future changes in China's consumption patterns.
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