Date
18 December 2017
Konrad Sippel, STOXX global head of product development, says investor wariness over mainland shares may be a matter of perception. Photo: HKEJ
Konrad Sippel, STOXX global head of product development, says investor wariness over mainland shares may be a matter of perception. Photo: HKEJ

Mainland shares frozen out of key world index

Hong Kong H shares have been included in all regular China indices of STOXX Ltd., a Zurich-based compiler of global benchmarks.

However, mainland-traded A shares made it to only one index — China A index – because of poor investor feedback, the company said Wednesday.

The announcement came after its United States-based rival MSCI Inc. said on June 10 that it decided to exclude A shares from its Emerging Markets indices after a yearly review.

MSCI cited concern by institutional investors over outstanding issues relating to China’s foreign investor schemes.

Another major compiler, FTSE Group, has no A shares in its Global Equity Index Series but is expected to include them within five years.

Konrad Sippel, global head of product development of STOXX, told reporters in Hong Kong that investor concern about A shares might be a matter of perception.

“For example, US investors are not allowed to invest in Russian shares due to its market structure. The Russians changed the structure two years ago but US investors still think they cannot invest in Russian stocks,” Sippel said. Similarly, foreign investors are just learning about China.

Meanwhile, STOXX is planning a China-related index with minimal volatility this year.

“We hope to launch at least one index product this year and the most upfront one we have on hand is the minimum variance index,” Sippel said.

“The index will be developed based on the STOXX China A50 index. We will test the market before launching it.”

The minimum variance index minimizes volatility in a portfolio and offers a version that is suitable for investors looking to hedge against risk.

STOXX launched the China A50 index in February last year, covering nine Chinese sectors, with financials having the highest weighting.

Sippel expects the next batch of fund products linked to an index tracking small-cap companies in Europe as the region’s economy continues to improve.

“But China’s small caps will continue to be under the radar screen due to little research coverage, not enough understanding of those small-cap companies and not enough liquidity.” These will be too risky at this time, Sippel said.

STOXX licensed its DAX index to HuaAn Fund Management Co. Ltd. in September 2012 and the product is expected to be listed in July.

EURO STOXX 50 was licensed to China Universal Asset Management Co. Ltd. in February last year and is expected to launch by the end of the year.

STOXX is the marketing agent for the indices of Deutsche Börse and Swiss Exchange SIX, which both own it.

The index company has also licensed other European indices to Chinese firms including ICBC Credit Suisse Asset Management (International) Co. Ltd. and Mirae Asset Financial Group.

A STOXX ASEAN-Five Select Dividend 50 index was licensed to Japanese firm Nomura Asset Management Co. Ltd. in March.

– Contact the reporter at [email protected]

RA

Ayishah Ma is a financial reporter on Greater China issues.

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