FTSE and Xinhua announce A share indices

China desperately needs more indices but the joint venture will face a huge marketing challenge.

FTSE/Xinhua Index, the joint venture between global index vendor FTSE and Xinhua Financial News, a commercial arm of China's government news agency Xinhua, is today (Thursday) unveiling a series of stock indices for the mainland A-share and B-share markets. It is the first time a foreign vendor has entered the mainland index business.

China desperately needs more indices. Presently, the only two that are followed by the market are the composite indices of the Shanghai and Shenzhen bourses. Domestic fund managers trying to come up with different investment styles find there is no efficient way to benchmark themselves. The China Securities Regulatory Commission is pushing the two exchanges to provide a composite index, but so far nothing has come of it. Many domestic securities companies and some fund managers have their own indices, but none have caught fire and are poorly promoted beyond firms' immediate customers.

Michael Lim, regional marketing director at FTSE in Hong Kong, says the FTSE/Xinhua indices will bring something new to the table: FTSE's globally competitive index methodology, and the promotional firepower of Xinhua.

The indices being launched include a 200-stock large-cap A-share index, a 400-stock mid-cap A-share index, a 600-stock composite A-share index, a B-share market index and the B 35 Index for that market's most liquid stocks. Domestic investors may now legally trade B shares if they have foreign currency, and FTSE/Xinhua is aiming all these indices at the domestic market. Earlier this year, the JV rolled out the China 25 Index, comprising H shares, red chips and B shares, which is for foreign investors.

Lim acknowledges propagating the new indices will be tough. "We hope to get CCTV to quote it every day," he says. "We should do better than the local securities companies, which do not promote their indices very well."

Xinhua itself has already bloodied its nose in the Chinese index business, however. It used to promote the Xinhua 400 Index, which like many others faded into obscurity.

Moreover, it is not certain that Chinese fund managers will immediately take to the new offerings. Lim expressed the hope that Huaan Fund Management in particular might benchmark its upcoming Innovation Fund against FTSE/Xinhua products. The Innovation Fund is to be China's first open-ended mutual fund. One reason Lim believes other indices have floundered is because funds are closed-ended and so cannot be traded daily; open-ended funds will create more of a need for people to be aware of performance against a benchmark.

But according to Huaan officials, "We are not currently considering using [FTSE/Xinhua's indices] as a benchmark. We believe that a benchmark should be well recognized. FTSE/Xinhua's index still needs to prove itself."

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