JP Morgan Asset Management has partnered with China Securities Index on the development of a new strategy index that provides exposure to China A-share stocks from the Yangtze River Delta region selected through an investment process that targets companies with attractive valuations and healthy profitability.

The index provides exposure to China A-Shares that have been selected according to valuation, profitability, and earnings quality metrics.

The index – the CSI JPMorgan Yangtze River Delta Area Strategic Beta Index – will officially launch on 10 June.

Philippe El-Asmar, Head of Beta Strategies in Asia Pacific, JP Morgan Asset Management, said, “China A-shares are a deep and liquid market with low correlation to other equities markets. They are rapidly becoming a more integral part of global investor portfolios. With expanding market liberalization and greater flagship index inclusion, investors are seeking more efficient and effective ways to access this market.

“JP Morgan Asset Management’s ongoing investments in China reflect our long-term and strategic commitment to one of the largest, fastest-growing and most exciting markets in the world.”

The index will focus on the universe of A-shares from the Yangtze River Delta region which covers more than 1,200 companies, representing approximately one-third of listed firms in China. The region contains the economically important cities of Shanghai, Nanjing, and Hangzhou.

Index methodology

The index process initially conducts a liquidity screen by ranking all eligible stocks by average daily trading value over the past year and eliminating the bottom 20%. The methodology then identifies the 150 equities with the highest scores according three components: valuation, profitability, and earnings quality. Each component within the score is weighted equally, and within each component, multiple different financial statement indicators (typically balance sheet, cash flow and income statement ratios) are used to determine the overall component score, with varying weights of importance.

Constituents are weighted by free float-adjusted market capitalization, adjusted such that the weights of stocks from sectors with higher return-on-equity over the past three years are proportionally increased.