MSCI has unveiled a suite of China equity indices – the MSCI China Thematic Indices – designed to help investors capitalize on long-term, structural trends within the country.

MSCI has unveiled a suite of megatrend indices focused on the Chinese equity market.

China was the only major economy to maintain positive growth during the Covid-19 pandemic and is expected to lead world growth in 2021.

The IMF estimates that it will contribute 19% to global GDP by 2024.

The new indices target segments of the Chinese economy that are strategically supported by government initiatives and are anticipated to exhibit higher-than-average growth.

MSCI has identified ten such themes: disruptive technology, future mobility, robotics, digital technology, autonomous technology & industrial innovation, next-generation internet, smart cities, millennials, ageing society, and efficient energy.

Methodology

The indices are derived from MSCI’s global megatrend indices (based on the MSCI ACWI) which harness insights from technology specialist ARK Invest to ascertain “economic relevance scores” assessing the strength of each company’s link to a specific theme. The score is based on the percentage of revenue derived from eligible business segments as well as the cumulative frequency of keywords in public descriptions of the company’s business activities. Firms with economic relevance scores of at least 25% are selected to form the index.

Each of the thematic indices is available in two versions – one based on China’s onshore equity market (constituents must be part of the MSCI China A Onshore IMI Index), the other comprising both China A-shares and Hong Kong listings (constituents must be part of the MSCI China All Shares IMI Index).

Each index version includes Chinese companies from across the market capitalization spectrum although additional liquidity constraints are applied and small-caps will need to have an economic relevance score above 50% to remain eligible.

Constituents are weighted according to the product of their economic relevance score and their float-adjusted market capitalization. Issuer weights are capped at 10%, and the indices are reconstituted and rebalanced semi-annually.

Significant growth potential

Stephane Mattatia, Global Head of Derivatives Licensing and Thematic Indexes at MSCI, commented: “We have identified long-term structural trends that are expected to transform global economies, drive innovation, and redefine business models. They have significant growth potential and are increasingly important drivers of earnings and equity returns. Unlike traditional, backward-looking investment approaches that focus on past winners, thematic investing reflects a future world that may be very different from the past.”

Doug Walls, Head of Index Products for APAC at MSCI, said: “Since the launch of our flagship MSCI China and MSCI China A Indexes, we continue to develop innovative index solutions to help investors capture China’s growth potential in their portfolios. Using MSCI’s global thematic framework and flexible and scalable rules-based methodology, we have constructed the China Thematic Indexes to help investors capitalize on opportunities created by these macroeconomic, technological, and demographic trends that are both structural and transformative in nature.”

The suite comprises:

MSCI China A Onshore IMI Disruptive Technology Index
MSCI China A Onshore IMI Future Mobility Index
MSCI China A Onshore IMI Robotics Index
MSCI China A Onshore IMI Digital Economy Index
MSCI China A Onshore IMI Autonomous Technology & Industrial Innovation Index
MSCI China A Onshore IMI Next Generation Internet Innovation Index
MSCI China A Onshore IMI Smart Cities Index
MSCI China A Onshore IMI Millennials Index
MSCI China A Onshore IMI Ageing Society Opportunities Index
MSCI China A Onshore IMI Efficient Energy Index

MSCI China All Shares IMI Disruptive Technology Index
MSCI China All Shares IMI Future Mobility Index
MSCI China All Shares IMI Robotics Index
MSCI China All Shares IMI Digital Economy Index
MSCI China All Shares IMI Autonomous Technology & Industrial Innovation Index
MSCI China All Shares IMI Next Generation Internet Innovation Index
MSCI China All Shares IMI Smart Cities Index
MSCI China All Shares IMI Millennials Index
MSCI China All Shares IMI Ageing Society Opportunities Index
MSCI China All Shares IMI Efficient Energy Index