FTSE’s new Asian sectors range is a reflection of the growing maturity of Asia’s indexing market. Jamie Perrett, Head of Quantitative Research at FTSE in Hong Kong says one of the benefits of sector-based investing is the differing performance of each sector. “The sector based indices provide investors with a basis for the creation of investment products, a cost-efficient way of adding/reducing exposure to specific sectors, the basis for asset allocation, and a tool to implement sector based strategies.
“For example, in March the top performing sector was the FTSE Asian Autos & Trucks Index, up 23.3 per cent, the bottom performing sector was FTSE Asian Utilities Index with a performance of 1.4 per cent. Year-to-date the FTSE Asian Technology Index has seen the highest performance with 14.3 per cent, with the FTSE Asian Retail Index having the lowest performance of -16 per cent. Over 5 years the FTSE Asian Construction & Materials Index has been the top performer with a return of 92 per cent, however, the FTSE Asian Technology index underperformed all indices with a fall in performance of -10.7 per cent.”
The historical correlation numbers show that in differing time periods the sector correlations with other members of the Index Series and particular country/regions have varied considerably. “If you take the current 1 year correlations numbers we have seen relatively similar values between sectors with the lowest correlation being between FTSE Asian Technology Index and FTSE Asian Utilities Index of 0.6650. Looking at 2005 the correlation numbers have fallen with the lowest being between FTSE Asian Oil & Gas Index and FTSE Asian Retail Index with 0.3534, correlations with particular sectors and countries/regions have also been low and sometimes negative.”
For China investors, Perrett shows how the weight of China within certain Asian sectors has expanded as more Chinese companies have listed in Hong Kong. “The main examples of this can be seen in Asian Banks where there were no Chinese companies prior to 2005, has grown to just under 35 per cent with the help of the H-share listings of China Construction Bank, ICBC and Bank of China.
Other examples include:
FTSE Asian Basic Resources Index where China’s weighting has increased from 16 per cent 5 years ago to just under 42 per cent at the end of March with the help of the H-share listings of China Shenhua Energy, China Coal Energy and Zijin Mining Group;
FTSE Asian Construction & Materials Index where China’s weighting has increased from just under 2 per cent in 2005 to 28 per cent at the end of March with the help of the H-share listings from 2006 to 2008 of China Communications Construction, China Railway Group and China Railway Construction;
FTSE Asian Financial Services Index - China’s weighting has grown by over 200 per cent to just under 30 per cent at the end of March. Interestingly, Taiwan’s weighting has fallen from just under 70 per cent, 5 years ago to just under 30 per cent at the end of March.