MSCI, one of the world’s largest providers of indices to exchange-traded funds (ETFs), has introduced the MSCI China A High Dividend Yield (HDY) Index, a new index measuring the performance of high yielding China A-shares.
MSCI’s new index measures the performance of high yielding China A-shares.
The new index includes stocks with a track record of sustainable and consistent dividend payouts and dividend growth, and is designed to serve as a benchmark for investors targeting the high-dividend yielding domestic China opportunity set or as the basis for index-linked financial products such as ETFs.
The index includes only securities that offer a higher-than-average dividend yield relative to that of the parent index and that pass dividend sustainability and persistence screens.
In particular, securities entering the index must have a dividend yield that is at least 30% higher than that of the parent MSCI China A Index and must have a non-negative payout ratio and a non-negative five-year dividends per share (DPS) growth rate.
In addition, MSCI screens out stocks that do not meet certain quality characteristics to exclude stocks with potentially deteriorating fundamentals that could force them to cut or reduce dividends. Factors looked at include return on equity, earnings variability and debt to equity.
The index is calculated using free float-adjusted market capitalisation weights, with constituent weights capped at 5%. It is re-balanced semi-annually.
Commenting on the launch, Theodore Niggli, Managing Director and Head of MSCI’s Asia Pacific Index business, said: “Dividends produced from the stocks in the MSCI China A Index have grown significantly – from RMB 12.95 billion in 2005 to RMB 94.7 billion in 2012. Furthermore, we have seen close to a 110% increase in the number of dividend-paying companies in the MSCI China A Index since 2009. The MSCI China A High Dividend Yield Index offers a timely new index choice for clients interested in this subset of the China A‑Share market.”
Given the current restrictions on foreign ownership of China A Shares, interest in the new index is most likely to initially come from domestic quarters, and in particular mainland China ETF providers keen to exploit MSCI’s strong brand to capitalise on the fast-growing domestic ETF market.
The index, however, is not without competition. FTSE offers the FTSE China A High Yield 150 Index, while local index providers China Securities Index Co and Shanghai Stock Exchange offer the CSI 300 Dividend Index and SSE Dividend Index respectively. Indeed, variants of this latter index are already available in investable format via the Shanghai-listed Huatai-PineBridge Dividend ETF (510880) and the Shenzhen-listed ICBC Credit Suisse SSE Dividend Price Index ETF (159905).