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The new index is composed of emerging markets and Chinese equities including China A-shares, N-shares and S-chips, which are weighted by GDP rather than market capitalisation.
The index is designed to reflect the growth of China’s economy and help market participants prepare for the future inclusion of China A-shares in global benchmarks, and is suitable for use as underlyings to index-linked investment products such as exchange-traded funds (ETFs) or as a benchmark for actively managed funds.
The index is a combination of securities from three different underlying index series: the FTSE Emerging Index, part of the FTSE Global Equity Index Series, the FTSE China A Index, including A-shares and the FTSE China Overseas Index, including N-shares and S-chips.
In addition, the new index is adjusted by GDP to reflect the performance of constituent companies where country weightings are proportionate to the country’s forecast GDP. The methodology uses the five year GDP forecasts at Purchasing Power Parity (PPP) published by the International Monetary Fund (IMF) to determine the country weightings.
Coinciding with the launch of the index is the announcement that it has been licensed to KraneShares, a New York-based ETF issuer, for the BATS-listed KraneShares FTSE Emerging Markets Plus ETF (KEMP). KranShares is a specialist provider of China-focussed ETFs.
Commenting on the new index, Mark Makepeace, Chief Executive, FTSE Group, said: “The inclusion of mainland Chinese stocks (A-shares) in international portfolios will have a sizable impact in the future, and FTSE remains committed to helping market participants prepare for this change through the development of new benchmarks. We are delighted to work with KraneShares for the first time, applying our more than 10 years of practical experience in developing China market indices.”
Jonathan Krane, CEO, KraneShares, added: “Our latest ETF (BATS: KEMP) is a milestone for the industry as the first US ETF to offer emerging market and China A-share exposure. It is also the first ETF in the US with a GDP weighting rather than the traditional market-capitalisation weighting. We look forward to continuing our relationship with FTSE to deliver more China-focused exchange traded funds so investors are well positioned at the forefront of China’s developing equities market.”