Bank of New York Mellon has launched a new index that tracks American depositary receipts (ADRs) issued by Chinese companies that have their primary listing in the US. The index is referred to as the “Xia Yi Dai” or “Next generation” index, and currently comprises 30 Chinese companies with market capitalisations ranging from $300 million to more than $11 billion.
Among the constituents are long-term investor favourites like Chinese search engine Baidu, online travel agent Ctrip.com, solar cell manufacturer Suntech Power and advertising agency Focus Media, as well as smaller and more recently listed companies like China Mindray Technologies, Duoyuan Global Water and O2 Micro International.
The new index reflects investor demand for growth industries from internet and travel to alternative energy and media, said Gregory Roath, head of BNY Mellon’s depositary receipts business in Asia-Pacific.
Because all of these companies do not have a primary listing of ordinary shares in another market, such as Hong Kong, they are often excluded from other major indices. Indeed, this will be the only index in the market to identify these types of Chinese companies, which tend to be privately owned and entrepreneurial in nature, as a unique segment of the Chinese market. Other indices, including the BNY Mellon China Select ADR Index, include such companies in the selection universe, but since they tend to have a relatively small market capitalisation, their impact on performance is limited.
Aside from providing an instrument for tracking the performance of these Chinese companies as a group, the Next Generation index is also expected to serve as the underlying for a number of investment products, giving investors more to choose from. Such products include exchange traded funds, derivatives, structured products, unit investment trusts and mutual funds.
“As with the entire family of DR indices, we aim to develop benchmarks that provide investors with access to international markets while benefitting from the convenience and cost savings associated with DR investing, Roath said.
The index is back-tested to December 31, 2005, when it had a base of 1,000 points. As of the end of September this year, the total return amounted to 27.59%.
On the same date, there were 59 Chinese companies with a primary ADR listing on the New York Stock Exchange and Nasdaq with a total float-weighted market capitalisation of $51.5 billion, according to Cheryl Workman, head of BNY Mellon’s depositary receipts index group. The 30 companies included in the new index represent $49 billion of the float-weighted universe.
