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穩健 創造持久財富

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標普中國 500 ETF

Chinese government steps up the effort to support growth - Takeaways of China's state council executive meeting
2018-07-24

Chinese government steps up the effort to support growth - Takeaways of China’s state council executive meeting

On 23 July 2018, China’s state council executive meeting hosted by Premier Li Keqiang announced the fiscal and monetary policy will be further fine-tuned to boost domestic demand. And the meeting reiterated that China will strike a balance between “easing and tightening” and keep liquidity “reasonable and sufficient”. It was also stressed that China will not resort to outright stimulus.

Here are some key points to come out of the state council executive meeting:

More tax incentives to support technology upgrading:

  • On top of 1.1 trillion yuan of reductions in levies and fees in the pipeline of 2018, the State Council announced that it will further expand the promised R&D tax credit (75% of cost) from small to mediumsized companies to all companies, which will bring additional tax cut worth of 65 billion yuan.
  • The government requested to finish the refund of 113 billion yuan of the drawback of the withholding tax to the qualified enterprises in advanced manufacturing and modern service industry.
  • The state council also requested to accelerate the issuance of 1.35 trillion yuan of special local bonds and fund for the infrastructure projects.

Prudent monetary policy to keep sufficient liquidity:

  • It was stressed to keep the appropriate total social fund, “reasonable and sufficient” liquidity and smooth capital transition mechanism.
  • The government requested the implementation of the various incentives to small and micro enterprises (SMEs). It was instructed that the financial institutions to support SMEs and the initiative of debtto-equity swap by the specific funds with RRR reduction. China also encouraged the commercial bank to issue financial bonds for SME with the waiver of the requirement of consecutive profit of the issuer.
  • The meeting also set up the target to increase 140 billion yuan loan for around 150 thousand SME every year.

Faster investment growth:

  • The government boosted the private investment in the projects in transport, oil and gas, and telecommunications.
  • The statement also seeks to guide financial institutions to guarantee reasonable funding to Local Government Financing Vehicles so that essential projects aren’t held up, to facilitate construction and planning of a number of large scale projects that will meet development purposes and public demand.

Furthermore, it was also mentioned to clear “zombie enterprises” - companies that require government support in the form of subsidies and bank loans to operate - and related invalid capital.

In general, Chinese government stepped up the effort to support the growth, confirming from consolidation to a more neutral stance amid the economic headwinds. And it seemed like Chinese financial markets are recovering an appetite for risk not seen in months, taking cues from the government’s push to invigorate the economy. We have seen a 2.8% rally of S&P China 500 in first three days of the week.

Given the 726 billion yuan deficit in first half of 2018 versus around 2.38 trillion yuan as budgeted full-year deficit (2.6% of 2018 GDP), together with 5 trillion yuan in fiscal deposits and robust land sales revenue, there is still ample room for further fiscal easing.

As for the monetary policy, below-target inflation and a stabilizing debt mean that the government can afford to further lower the Required Rate of Return (RRR). This can increase lending funds to facilitate the corporate development. Market players expects additional cuts of RRR rate in the second half of 2018.

Source of all data: The state Council of The People’s Republic of China, 24 July 2018. http://www.gov.cn/xinwen/2018-07/24/content_5308679.htm

This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.

ICBCCS

The opinions expressed in this article are the author's own and do not necessarily reflect the view of WisdomTree.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. No warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, its officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. However, back tested performance is purely hypothetical and solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.

INDEX PERFORMANCE DISCLOSURE

The S&P China 500 was launched on August 28, 2015. All information presented prior to an index’s Launch Date is hypothetical (back-tested), not actual performance. The back-test calculations are based on the same methodology that was in effect on the index Launch Date. Complete index methodology details are available at www.spdji.com. Please read S&P Dow Jones Indices LLC’s DISCLAIMERS.

DISCLAIMERS

The S&P China 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by ICBC Credit Suisse Asset Management (International) Co., Ltd. (ICBCCSI), © 2016 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P, SPDR and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”). DOW JONES is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks together with others have been licensed to S&P Dow Jones Indices LLC. Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission. This document does not constitute an offer of services in jurisdictions where S&P Dow Jones Indices LLC, Dow Jones, S&P or their respective affiliates (collectively “S&P Dow Jones Indices”) do not have the necessary licenses. All information provided by S&P Dow Jones Indices is impersonal and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. Past performance of an index is not a guarantee of future results. Neither S&P Dow Jones Indices LLC, Dow Jones, S&P, and their respective affiliates (“S&P Dow Jones Indices”) nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
In this document, ICBC Credit Suisse refers to ICBC Credit Suisse Asset Management Company Limited and its subsidiary, ICBC Credit Suisse Asset Management (International) Company Limited (“ICBCCSI”). ICBCCSI is a regulated entity under the Hong Kong Securities and Futures Commission.

No account has been taken of any person’s investment objectives, financial situation or particular needs when preparing this document. This is not an offer to buy or sell, or a solicitation or incitement of offer to buy or sell, any particular security, strategy, investment product or services nor does this constitute investment advice or recommendation.
The views and opinions expressed in this document, which are subject to change without notice, are those of S&P Dow Jones Indices LLC, ICBC Credit Suisse and/or its affiliated companies at the time of publication. While S&P Dow Jones Indices LLC, ICBC Credit Suisse and/or its affiliated companies (collectively as “we” or “us”) believe that the information is correct at the date of this presentation, no warranty of representation is given to this effect and no responsibility can be accepted by us to any intermediaries or end users for any action taken on the basis of this information. Some of the information contained herein including any expression of opinion or forecast has been obtained from or is based on sources believed by us to be reliable as at the date it is made, but is not guaranteed and we do not warrant nor do we accept liability as to adequacy, accuracy, reliability or completeness of such information. The information is given on the understanding that any person who acts upon it or otherwise changes his or her position in reliance thereon does so entirely at his or her own risk without liability on our part.
This material has not been reviewed by the Hong Kong Securities and Futures Commission. Issuer of this material: ICBC Credit Suisse Asset Management (International) Company Limited. This material shall be distributed in countries where it is permitted.

Quality over quantity: China's Economic Growth Focus in 2018
2018-01-26

Quality over quantity: China's Economic Growth Focus in 2018

The Central Economic Work Conference (CEWC) was held in Beijing on 18-20 December, 2017. As the first CEWC after the 19th Party Congress, it set the tone for China’s central government’s economic policies in 2018. They are crucial to the long-term development of the world’s second-largest economy.

Highlights of the CEWC

(1) High-quality development over GDP targets

CEWC emphasized the quality of the economic development over specific GDP targets. The government will likely unveil its GDP growth target at “around 6.5%” during the National People’s Congress in March 2018 instead of “6.5% or higher if practically possible” in 2017. The government will follow its previous guideline of “making progress while maintaining stability” and keep economic growth within a “reasonable range.”

(2) Three key focuses: prevention of major financial risks, poverty alleviation, and pollution reduction

Preventing major financial risk. The government will focus on containing major financial risks to form a “virtuous cycle” among the financial, real and property sectors, as well as within the financial system.1 There will also be increasing efforts to crack down the illegal activities in the banking, securities and insurance sectors as well as online finance.

Poverty alleviation. President Xi pledged to lift all rural residents above China’s poverty line by 2020. The central government will also step up its supervision of local government bodies while allocating more fiscal resources to welfare, education and healthcare as well as public services in rural area.

– Pollution reduction. The CEWC targeted to “significantly reduce” the gross emissions of major pollutants with a specific focus on air pollution control. Previous measures such as reducing industrial activities during the winter heating season will continue. China will also examine its industrial structure, energy structure and transportation structure in order to achieve eco-friendly development.

(3) Monetary and fiscal policies

- Monetary policy. The CEWC said China will implement prudent and neutral monetary policy2. However, following the Fed’s rate hike decision in December, the PBoC raised interest rates on MLF and reverse repo operations by merely 5bps. The move was pre-emptive but it indicated that the PBoC is ready to use interest rates and other measures to ensure financial stability if volatilities are triggered by external factors.

- Fiscal policy, the government will implement a proactive fiscal policy in 2018. In particular, the CEWC said the government will improve its supervision over local government debts. That being said, strategic projects related to government-led regional integration plans (such as the Guangdong "Bay area" blueprint, Xiong'an new district, and the Yangtze River Delta city-clusters) will still be supported by government budget spending and debt issuance.

(4) Currency

The CEWC confirmed that China will maintain stability of the RMB exchange rate at a reasonable equilibrium level. Although the global financial market volatility and the interest rate hike of the Federal Reserve will weigh on the RMB exchange rate, the growth of Chinese economy and the ongoing RMB internationalization will offset the impact. We will expect two-way fluctuations of the RMB’s exchange rate in 2018

(5) Property

The CEWC repeated that the government will establish the “long-term price mechanism” for the property market, with “equal emphasis on rentals and sales.” It will encourage the professional and institutional participation in the rental market. We do not expect loosening of existing restrictions on purchase and resale to curb the property price. The development of private rental and public social housing may pick up. Going forward, the uncertainty on the property sector has somewhat increased.

Investment outlook

To achieve high-quality development, the government will promote consumption and private investment to drive growth. Rural reform targeting to alleviate the poverty such as restoring land use rights to farmers could also unlock rural land wealth of US$20trn and hence boost rural consumption.

The government has recently selected 31 central and local SOEs as the third batch of the mixed ownership reform pilots program. SOE reforms, especially SASAC (State-owned Assets Supervision and Administration Commission of the State Council) reform, will accelerate in 2018.

New energy and eco-friendly firms will gain from anti-pollution initiatives. “China going green” is a government-led initiative for investment in the medium term. Investment in rural infrastructures (roads, access to water, power and Internet, etc.) and industries will likely emerge as a new growing area of fixed asset investment.

S&P China 500 Index consists of 500 largest and most liquid Chinese companies listing globally. It covers almost all the potential China-related investment opportunities. Broad based strength in Chinese equities propelled the S&P China 500 to a 44% total return for the year of 2017. The index had notably consistent performance during the year as well recording positive returns in all 12 months.

Figure 1: Comparison of industry distribution

By GICS1 sectors weight (%)

1:The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a trademark of S&P and MSCI. Please refer to index disclaimers and index performance disclosure at the end of this presentation

Source: Bloomberg, FTSE, MSCI, China Securities Index, Hang Seng Indexes, S&P Dow Jones Indices; As of Dec 31, 2017; Please refer to index disclaimers at the end of this blog.

Benefited from its diversification in markets and sectors exposure, S&P China 500 has demonstrated better risk-adjusted returns (Figure 2). During the period from 31 Dec, 2008 to 31 Dec, 2017, the S&P China 500 generated an annualized return of 13.0% and Sharpe ratio of 0.59, both are the highest among the major China indices.

Figure 2: Performance comparison1: SPC500 vs. major China indices

1:Calculation starts from 31-Dec-08 to 31-Dec-17. “No of Stocks” data as of 31 Dec 2017. All data are converted to USD.

2: S&P China 500 (USD), based on back-test performance, annualized net total return. Source: S&P Dow Jones Indices LLC. Data as of Dec 30, 2017. Index performance based on net total returns USD. Charts and graphs are provided for illustrative purposes. Past performance is not an indication or guarantee of future results. These charts and graphs may reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.

Source: Bloomberg, FTSE, MSCI, HSI, CSI, S&P Dow Jones Indices; Please refer to index disclaimers and index performance disclosure at the end of this document

SPC5002

CSI300

FTSE A50

MSCI

CHINA

HSCEI

1 ChinaDaily, 21 Dec 2017. http://www.chinadaily.com.cn/a/201712/21/WS5a3af4aea31008cf16da2822.html

2 ChinaDaily, 20 Dec 2017. http://www.chinadaily.com.cn/a/201712/20/WS5a3a3b4ba31008cf16da279a.html

DISCLAIMERS

This communication is confidential, is for informational purposes and is only for the intended recipients. It is not intended as an offer, investment advice or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Some of the information contained herein including any expression of opinion, forecast, market prices or data has been obtained from or is based on sources believed by us to be reliable as at the date it is made, are subject to change without notice but is not guaranteed. ICBC Credit Suisse, its subsidiaries and affiliates (collectively, “ICBCCS”) do not warrant nor do ICBCCS accept liability as to adequacy, accuracy, reliability or completeness of such information.

This transmission may contain information that is proprietary, privileged, confidential, and/or exempt from disclosure under applicable law. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution, or use of the information contained herein (including any reliance thereon) is STRICTLY PROHIBITED. If you received this transmission in error, please immediately contact the sender and destroy the material in its entirety, whether in electronic or hard copy format. Although this transmission and any attachments are believed to be free of any virus or other defect that might affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus free and no responsibility is accepted by ICBCCS for any loss or damage arising in any way from its use. Please note that any electronic communication that is conducted within or through ICBCCS’s systems is subject to interception, monitoring, review, retention and external production; may be stored or otherwise processed in countries other than the country in which you are located; and will be treated in accordance with ICBCCS’s policies and applicable laws and regulations.

Looking ahead to China's 19th National Congress
2017-09-29

Looking ahead to China’s 19th National Congress

The 19th National Congress of the Communist Party of China (CPC), one of the most important political events this year, will be convened on Oct 18. The reshuffling of the Politburo Standing Committee (PSC) members is crucial to the centralization of power for the new government, as well as the economic and social policies in the coming few years. On the economic front, the continuity of the following policies may have significant impact to the capital markets.

Containing financial risks

The “two sessions” (The fifth sessions of the 12th National People’s Congress and the 12th National Committee of the Chinese People’s Political Consultative Conference) held in March set the tone for the upcoming party congress, at which containing financial risks and maintaining economic stability were emphasized. In the run-up of the congress, the government is working on deleveraging as evidenced by the decrease in the growth in M2. M2 grew 8.9% yoy in August 2017, hitting a record low since 1996.[1] Moreover, eight cities rolled out housing tightening measures ahead of the congress, with most banning home sales within two to three years after purchases.[2] It showed that the government is determined to curb the property bubble. It is believed that the new government will continue to guard the economy against financial shocks.

Structural Reforms

Over the past few years, the government is committed to supply-side reform, by which overcapacity is being reduced, resulting the pick-up of PPI and industrial enterprises profits. Regarding state-owned enterprises (SOEs) reform, 32 SOEs have accomplished restructuring since 2013, according to Premier Li Keqiang. As a result, management and operation costs decreased and efficiency improved, leading to 40% increase in profits from 2012 to 2016 for the restructured SOEs.[3] The pace of SOEs reform could be accelerated if political power is consolidated by the political reshuffle.   

Investment Outlook

Stability is the key to the economic development of China. We believe the new government will pay the utmost effort to rein in risks and promote sustainable growth. Deleverage may challenge the financial sector in the short-term but will lead to healthier growth in the long-term. We expect new economy sectors such as Information Technology, Consumer and Health Care are less affected by the transitions of powers.

Chinese equities advanced solidly in August benefited from resilient corporate earnings and stable macro environment before the congress. The S&P China 500 Index recorded a strong growth of 32.59% YTD (as of Aug 31, 2017).

The S&P China 500 Index underweights financial sector (25%) comparing to FTSE A50 (64%), CSI300 (37%) and HSCEI (73%) as of Aug 31, 2017. More weights are distributed to new economy sectors, such as I.T. (21%), consumer discretionary (12%).

Figure 1: S&P China 500 Has More Diversified Sector Exposure vs. Existing Major China Indices

Benefited from its diversification in markets and sectors exposure, S&P China 500 has demonstrated better risk-adjusted returns (Figure 2). During the period from 31 Dec, 2008 to 31 Aug, 2017, the S&P China 500 generated an annualized return of 12.5% and Sharpe ratio of 0.55, both are the highest among the major China indices.

Figure 2: S&P China 500 Demonstrated Better Risk-Adjusted Return

1: Calculation starts from 31-Dec-08 to 31-Aug-17. “No of Stocks” data as of 31 Aug 2017. All data are converted to USD.

2: S&P China 500 (USD), based on back-test performance, annualized net total return. Source: S&P Dow Jones Indices LLC. Data as of Aug 31, 2017. Index performance based on net total returns USD. Charts and graphs are provided for illustrative purposes. Past performance is not an indication or guarantee of future results. These charts and graphs may reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.

Source: Bloomberg, FTSE, MSCI, HSI, CSI, S&P Dow Jones Indices; Please refer to index disclaimers and index performance disclosure at the end of this document

DISCLAIMERS

The S&P China 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by ICBC Credit Suisse Asset Management (International) Co., Ltd. (ICBCCSI), © 2017 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”). DOW JONES is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks together with others have been licensed to S&P Dow Jones Indices LLC. Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission. This document does not constitute an offer of services in jurisdictions where S&P Dow Jones Indices LLC, Dow Jones, S&P or their respective affiliates (collectively “S&P Dow Jones Indices”) do not have the necessary licenses. All information provided by S&P Dow Jones Indices is impersonal and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. Past performance of an index is not a guarantee of future results. Neither S&P Dow Jones Indices LLC, Dow Jones, S&P, and their respective affiliates (“S&P Dow Jones Indices”) nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

In this document, ICBC Credit Suisse refers to ICBC Credit Suisse Asset Management Company Limited and its subsidiary, ICBC Credit Suisse Asset Management (International) Company Limited (“ICBCCSI”). ICBCCSI is a regulated entity under the Hong Kong Securities and Futures Commission.

No account has been taken of any person’s investment objectives, financial situation or particular needs when preparing this document. This is not an offer to buy or sell, or a solicitation or incitement of offer to buy or sell, any particular security, strategy, investment product or services nor does this constitute investment advice or recommendation.

The views and opinions expressed in this document, which are subject to change without notice, are those of S&P Dow Jones Indices LLC, ICBC Credit Suisse and/or its affiliated companies at the time of publication. While S&P Dow Jones Indices LLC, ICBC Credit Suisse and/or its affiliated companies (collectively as “we” or “us”) believe that the information is correct at the date of this presentation, no warranty of representation is given to this effect and no responsibility can be accepted by us to any intermediaries or end users for any action taken on the basis of this information. Some of the information contained herein including any expression of opinion or forecast has been obtained from or is based on sources believed by us to be reliable as at the date it is made, but is not guaranteed and we do not warrant nor do we accept liability as to adequacy, accuracy, reliability or completeness of such information. The information is given on the understanding that any person who acts upon it or otherwise changes his or her position in reliance thereon does so entirely at his or her own risk without liability on our part.

This material has not been reviewed by the Hong Kong Securities and Futures Commission. Issuer of this material: ICBC Credit Suisse Asset Management (International) Company Limited. This material shall be distributed in countries where it is permitted.

INDEX PERFORMANCE DISCLOSURE

The S&P China 500 was launched on August 28, 2015. All information presented prior to an index’s Launch Date is hypothetical (back-tested), not actual performance. The back-test calculations are based on the same methodology that was in effect on the index Launch Date. Complete index methodology details are available at www.spdji.com. Please read S&P Dow Jones Indices LLC’s DISCLAIMERS.

Embracing the globalization of Chinese equities
2017-06-27

Embracing the globalization of Chinese equities

Being the second largest capital market and the second largest economy in the world, China is underrepresented in most of the international benchmarks which is unparalleled with its significance to the world economy. With increased accessibility to Chinese domestic equities market, one of the largest index compliers received broad support from international investors with whom they consulted and recently announced to include China A-shares into its benchmark indexes.

  1. Liberalization of capital markets fostering globalization of China assets

The impact of the inclusion in the initial stage is expected to be modest due to the limited inclusion factor. Nevertheless, the decision shows that China A market has gained recognition from international investors and cannot be neglected. The globalization of Chinese securities is inevitable and in progress. The opening up of China’s capital market has been accelerated in the past few years, as evidenced by the launch of QFII, RQFII and Stock Connect programs. CSRC Vice Chairman Mr. Fang Xinghai mentioned that they would consider increasing Connect daily quota and reforming QFII quota system for better foreign access[1].

Once the capital market of China is liberalized, it is believed that Chinese equities will become more prominent in the portfolios of global assets allocators in order to reflect the importance and influence of its economy and financial markets. With the expectation of China’s gradual increase in weighting in international benchmarks, global investors are called to pre-position themselves for the irreversible trend of China assets globalization. A board base index and related investment products which can better represent the Chinese economy would be an ideal building block of global and/or regional equity portfolios.

  1. S&P China 500 Index – in response to increasing market demand for “Total China” index

Against the backdrop of broadened capital flows between domestic China and international markets, the demand for benchmarks that integrate the China onshore and offshore listings has been increasing. In response to market demand, the S&P China 500 Index was launched to offer a more complete China coverage by including both onshore and offshore Chinese equities.

S&P China 500 Index covers 500 the largest and most liquid Chinese companies regardless of their listing venue, including the entire universe of Chinese equities, such as A, B, H, Red Chip, P Chip and Chinese securities listed in the U.S. or any other overseas exchanges.

Compared to other major China indices, S&P China 500 offers a more diversified sector exposure (Figure 1). It is much less concentrated in Financials (23%) comparing to FTSE A50 (64%), CSI 300 (35%), MSCI China (25%) and HSCEI (72%) as of May 31, 2017. More weights are distributed to new economy sectors, such as I.T. (19%) and consumer discretionary (13%).

Figure 1: S&P China 500 Has More Diversified Sector Exposure vs. Existing Major China Indices

Comparison of industry distribution

By GICS1sectors weight (%)

1: The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a trademark of S&P and MSCI.

Source: Bloomberg, FTSE, MSCI, China Securities Index, Hang Seng Indexes, S&P Dow Jones Indices; As of May 31, 2017; Please refer to index disclaimers at the end of this document.

Benefited from its diversification in markets and sectors exposure, S&P China 500 has demonstrated better risk-adjusted returns (Figure 2). During the period from 31 Dec, 2008 to 31 May, 2017, the S&P China 500 generated an annualized return of 10.9% and Sharpe ratio of 0.48, both are the highest among the major China indices.

Figure 2: S&P China 500 Demonstrated Better Risk-Adjusted Return

1: Calculation starts from 31-Dec-08 to 31-May-17. “No of Stocks” data as of 31 May 2017. All data are converted to USD.

2: S&P China 500 (USD), based on back-test performance, annualized net total return.

Source: Bloomberg, FTSE, MSCI, HSI, CSI, S&P Dow Jones Indices; please refer to index disclaimers and index performance disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.

The S&P China 500 offers a more comprehensive market coverage while approximating the sector composition of the broader Chinese equity market make it a better proxy for Chinese economy.

DISCLAIMERS

The S&P China 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by ICBC Credit Suisse Asset Management (International) Co., Ltd. (ICBCCSI), © 2016 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P, SPDR and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”). DOW JONES is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks together with others have been licensed to S&P Dow Jones Indices LLC. Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission. This document does not constitute an offer of services in jurisdictions where S&P Dow Jones Indices LLC, Dow Jones, S&P or their respective affiliates (collectively “S&P Dow Jones Indices”) do not have the necessary licenses. All information provided by S&P Dow Jones Indices is impersonal and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. Past performance of an index is not a guarantee of future results. Neither S&P Dow Jones Indices LLC, Dow Jones, S&P, and their respective affiliates (“S&P Dow Jones Indices”) nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

In this document, ICBC Credit Suisse refers to ICBC Credit Suisse Asset Management Company Limited and its subsidiary, ICBC Credit Suisse Asset Management (International) Company Limited (“ICBCCSI”). ICBCCSI is a regulated entity under the Hong Kong Securities and Futures Commission.

No account has been taken of any person’s investment objectives, financial situation or particular needs when preparing this document. This is not an offer to buy or sell, or a solicitation or incitement of offer to buy or sell, any particular security, strategy, investment product or services nor does this constitute investment advice or recommendation.

The views and opinions expressed in this document, which are subject to change without notice, are those of S&P Dow Jones Indices LLC, ICBC Credit Suisse and/or its affiliated companies at the time of publication. While S&P Dow Jones Indices LLC, ICBC Credit Suisse and/or its affiliated companies (collectively as “we” or “us”) believe that the information is correct at the date of this presentation, no warranty of representation is given to this effect and no responsibility can be accepted by us to any intermediaries or end users for any action taken on the basis of this information. Some of the information contained herein including any expression of opinion or forecast has been obtained from or is based on sources believed by us to be reliable as at the date it is made, but is not guaranteed and we do not warrant nor do we accept liability as to adequacy, accuracy, reliability or completeness of such information. The information is given on the understanding that any person who acts upon it or otherwise changes his or her position in reliance thereon does so entirely at his or her own risk without liability on our part.

This material has not been reviewed by the Hong Kong Securities and Futures Commission. Issuer of this material: ICBC Credit Suisse Asset Management (International) Company Limited. This material shall be distributed in countries where it is permitted.

INDEX PERFORMANCE DISCLOSURE

The S&P China 500 was launched on August 28, 2015. All information presented prior to an index’s Launch Date is hypothetical (back-tested), not actual performance. The back-test calculations are based on the same methodology that was in effect on the index Launch Date. Complete index methodology details are available at www.spdji.com. Please read S&P Dow Jones Indices LLC’s DISCLAIMERS.

ICBCCS on China background
2017-04-27

What now for Chinese markets?
An interview with ICBCCS
I

Despite Q1’s 6.9% growth rate, the 2017 target is 6.5%, a touch lower than the 6.7% GDP growth achieved in 2016. With these lower projections, should investors still be optimistic? Vania Pang, of ICBC Credit Suisse Asset Management (International) Co. Ltd. (ICBCCSI)’s, Capital Markets and Investment Solutions of Index and Quantitative Investment team, weighed in.

Vania: The softening growth target together with the goal of maintaining stability reflect the government’s intention to rebalance the economy from credit-fuelled growth to a more sustainable growth path.

Instead of pumping up economic activities by increasing credit supply, continuing structural reforms and expansionary fiscal policy are deployed. Encouraging improvement in PMI and PPI were found since Q4 2016 as a result of the structural reforms launched in 2015. Industrial enterprises profits and revenue picked up significantly in Jan and Feb 2017 with 31.5% and 13.9% growth yoy respectively. Both the profit margin and ROA grew while the debt to asset ratio lowered to 56.2% (2016: 56.8%)[1]. Other policies such as ‘One-belt-one-road’ and the recently announced Xiongan Special Economic Zone could boost the investment and demand in infrastructure, energy, construction, and property in the medium-term.

The M2 and total social financing growth target are also at levels below that of 2016. What’s your take on these numbers?

Vania: The total debt of China exceeds 250% of GDP which posed a threat to the financial system. Excessive borrowing could be curbed by lowering the M2 and social financial growth target. It is a clear step forward for risk control.

Controlling financial risks was set as the priority in the Central Economic Work Conference in December 2016. A “neutral and prudent” monetary policy is implemented to contain risk, deleverage and to deflate bubbles. The PBOC raised the medium-term lending facility and seven day reverse repo for the 3rd time in three months since the beginning of 2017.

The central bank has been cautious in managing liquidity through reducing money supply and adjusting the short-term rates instead of the benchmark rate in order to avoid adding burden to corporates with higher borrowing cost.

A lot has been said about upgrading the real economy through innovation. What does that mean and where will those impacts be felt most?

Vania: It means providing long-term support for R&D, building infrastructure for science and technology and commercialisation of new technology. Development of emerging industries such as artificial intelligence, new materials and new energy will also be accelerated this year.

Financial support is crucial in making the technological innovation and upgrading happen. On 28 March, the PBOC said China will support the insurance companies to expand their scope to provide more low-cost and long-term funds for the manufacturers to upgrade. Furthermore, the government will provide monetary credit policy support for manufacturers to modernise and expand overseas.[2]

The plan of upgrading China’s manufacturing sector was first proposed by Premier Li Keqiang in 2015, known as “Made in China 2025”. The country plans to develop smart manufacturing and build home-grown brands with both design and production capabilities that could compete against international rivals. The trend of increasing the application of information technology and automation would impact the manufacturing sector most and foster its evolution.

Looking at the next several months, what are some of the key events and risks that could potentially influence the markets?

Vania: China will host the first Belt and Road Summit in Beijing in May 2017. The belt and road initiative aims to achieve connectivity and economic integration to promote growth in the region. The interaction with other countries and takeaways from the summit is important in understanding China’s influence on world stage and what opportunities the initiative could bring to China.

In November, The 19th Party Congress will be held where a significant leadership reshuffle will occur, including major changes to the composition of the Politburo Standing Committee (PSC). The president and the new PSC may reassess the current development strategy and announce new policy direction. Attention should to be paid on how the transition of power and new policy direction may impact the political and economic environment of China.

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[1] Source: National Bureau of Statistics of China. As of 28 March 2017.

[2] Source: Reuters, 28 March 2017. http://www.reuters.com/article/china-economy-cenbank-idUSL3N1H51S6

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