The CSI A500 Index (code: 000510) is to be officially launched on 23 September 2024. This index selects 500 securities from various industries, focusing on companies with large market caps and strong liquidity, providing a comprehensive reflection of the most representative listed securities in each industry. Key characteristics of the CSI A500 Index include: 1) its component stocks represent leading companies in their respective industry segments; 2) the industry market cap distribution closely aligns with that of the CSI All Share Index; and 3) the index incorporates stock connectivity and ESG criteria in its selection process. The CSI A500 is categorized as a large-cap index, with its weighted free-float market cap positioned between the CSI 300 and CSI 800, offering extensive market cap coverage and strong representation. The index spans all 35 CSI tier-2 industries and 92 CSI tier-3 industries, maintaining a balanced distribution across sectors with low concentration in any single industry. We believe the release of the CSI A500 holds significant implications. First, it offers investment products that more accurately represent China’s economic structure. Second, its emphasis on emerging industries supports the development of new productive forces and economic transformation. Finally, the CSI A500’s selection criteria such as stock connectivity and ESG enhance its investability, attracting both domestic and international investors for medium- to long-term allocations in A-share assets. On 10 September 2024, the first batch of 10 ETFs tracking the CSI A500, including the Invesco Great Wall CSI A500 ETF, was launched.
CSI A500 to be released – compilation rules, and features
The CSI A500 Index (code: 000510) is to be officially launched on 23 September 2024. This index selects 500 securities from various industries, focusing on companies with large market caps and strong liquidity, providing a comprehensive reflection of the most representative listed securities in each industry. Key characteristics of the CSI A500 Index include: 1) its component stocks represent leading companies in their respective industry segments; 2) the industry market cap distribution closely aligns with that of the CSI All Share Index; and 3) the index incorporates stock connectivity and ESG criteria in its selection process. With a broad market cap coverage and a balanced industry distribution, we think the CSI A500 is poised to become a more representative and widely adopted broad-based index in the A-share market. On 10 September 2024, the first batch of 10 ETFs tracking the CSI A500, including the Invesco Great Wall CSI A500 ETF, was launched.
Market cap style and industry distribution of CSI A500
The CSI A500 is categorized as a large-cap index, with its weighted free-float market cap positioned between the CSI 300 and CSI 800, offering extensive market cap coverage and strong representation. The index spans all 35 CSI tier-2 industries and 92 CSI tier-3 industries, maintaining a balanced distribution across sectors with low concentration in any single industry. The index’s sampling methodology helps ensure that its industry market cap distribution closely aligns with the sample space, reflecting the evolving structure of China’s economy while mitigating industry-specific risks.
Differences between CSI A500 & CSI 500/CSI A50
The CSI A500 differs from the CSI 500 in two main ways: 1) market cap distribution – CSI A500 constituents rank among the top 500 in the market, while CSI 500 constituents rank between the top 300 and top 800; 2) Industry neutrality – the CSI A500 emphasizes balanced industry allocations compared with the CSI 500. Both indices belong to the CSI A-share series, considering factors such as ESG, stock connectivity, and industry neutrality. However, the primary distinction between the two lies in the ‘width’ of coverage, with the CSI A500 offering broader inclusion. Its sampling methodology, market cap focus, and industry allocation share significant similarities with those of the S&P 500, positioning the CSI A500 as a potential ‘Chinese version of the S&P 500,’ in our view.
How to invest in CSI A500 and significance of the launch of CSI A500
On 10 September 2024, the first batch of 10 ETFs tracking the CSI A500, including the Invesco Great Wall CSI A500 ETF (code: 159353), was launched, enabling investors to gain exposure to the A500 through ETF products. We believe the release of the CSI A500 holds significant implications. First, it offers investment products that more accurately represent China’s economic structure. Second, its emphasis on emerging industries supports the development of new productive forces and economic transformation. Finally, the CSI A500’s selection criteria such as stock connectivity and ESG enhance its investability, attracting both domestic and international investors for medium- to long-term allocations in A-share assets.
Ten Points to Watch for CSI A500
The CSI A500 Index is set to be officially launched on 23 September 2024. Our analysis outlines 10 key aspects highlighting the index’s characteristics and investment value, and focuses on critical factors such as its compilation methodology and style features, offering investors a thorough understanding of the CSI A500 Index.
#1: Compilation methodology for CSI A500
The CSI A500 Index is compiled by China Securities Index Company, selecting 500 securities with large market cap and strong liquidity from various sectors, so as to reflect the overall performance of the most representative listed securities across sectors. The index is identified by code 000510 and abbreviated as CSI A500, with a base date of 31 December 2004 and a base point of 1,000.
Sample space
The CSI A500’s sample space is consistent with that of the CSI All Share Index, covering A-shares listed on the Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE), and Beijing Stock Exchange (BSE) that fulfill the following conditions:
1) Non-ST/*ST stocks and non-suspended stocks;
2) STAR Market and BSE-listed securities must be listed for over one year and two years, respectively;
3) A-share listings of over one quarter are eligible unless the stock ranks among the top 30 of all A-shares listed on SSE, SZSE, and BSE by average daily total market cap since its listing.
Sample selection criteria
For a security to be included in the CSI A500, it must meet the following criteria:
1) Investability: The security must rank among the top 90% of the sample space based on average daily turnover over the past year;
2) ESG rating: A CSI ESG rating of C or above is required;
3) Market cap: It must rank among the top 1,500 in terms of total market cap;
4) Stock connectivity: The security must be a constituent of the Shanghai-Hong Kong Stock Connect program or the Shenzhen-Hong Kong Stock Connect program;
5) Industry leadership: Main board securities must represent at least 2% of the free-float market cap within their respective CSI tier-3 industries.
The selection process follows a two-step procedure for candidate securities meeting above- mentioned criteria:
1) Prioritize securities with the largest free-float market cap in tier-3 industries or those whose total market cap rank within the top 1% of the sample space for inclusion in the index;
2) Among the remaining eligible securities, a certain number is selected from the CSI tier-1 sectors based on free-float market cap, ensuring that the final number of index constituents reaches 500. The distribution of free-float market cap across CSI tier-1 sectors is aligned as closely as possible with that of the sample space. To do so, the following method is applied: for each step of the sample selection process, the share of the CSI tier-1 sectors by free-float market cap in the index sample is calculated. The sector with the lowest market cap share relative to that of the sample space is identified, and the security with the largest free-float market cap in that sector is added to the index. This process is repeated until the total number of samples reaches 500.
Weighting methodology
The CSI A500 index, in addition to using a free-float market cap-weighted and tiered approach, applies a weighting factor to adjust for constituents that have excessive weights. Ultimately, the adjusted market cap of each constituent determines its final weight in the index. Specifically, the weight of any sample constituent shall not exceed 10%, and the combined weight of the top five constituents is capped at 40%.
Sample adjustments
There are two types of index sampling adjustments, namely regular and temporary adjustment:
1) Regular adjustment: The index undergoes a sample adjustment every six months, specifically on the next trading day following the second Friday of June and December each year. Weighting factors are adjusted in sync with the index, and after the adjustment, they are generally maintained until the next regular adjustment. The proportion of samples adjusted at each interval typically does not exceed 10%. A buffer mechanism is in place to ensure that if the free float market cap of existing samples in their CSI tier-3 sectors on the main board is 1% or higher, they remain as candidate samples. When replenishing samples to ensure the total number remains 500, priority is given to new samples ranked within the top 400, while existing samples ranked within the top 600 are also prioritized for retention.
2) Temporary adjustment: This occurs under special circumstances. For example, if a sample is delisted, it is promptly removed from the index. Acquisitions, mergers, and spin-offs are handled according to the event management rules set by the China Securities Index Company. Additionally, if adjustments of the Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect affect a sample’s eligibility, the index is updated accordingly.
#2: Significant features of the CSI A500
Feature 1: industry segment leaders
A comparison of the allocation weights of CSI A500 and CSI All Share Index across all CSI tier-1 sectors as follows reveals minimal deviation, with an average absolute deviation for all 11 CSI tier-1 sectors of only 0.36%.
Connectivity: Securities eligible for the CSI A500 must be constituents of the Shanghai-Hong Kong Stock Connect or the Shenzhen-Hong Kong Stock Connect. This facilitates international capital allocation to core A-share assets. The CSI A500 is hence positioned to become a vital link between China’s A-share market and the global capital market, potentially attracting foreign capital inflows and enhancing the international competitiveness and recognition of A-shares, in our view.
According to the CSI tier-1 sector classification, the CSI A500 places significant weight on the industrials, financial, information technology, raw materials, and major consumer sectors. The top three sectors account for 49.6% of the total weighting, while the top five sectors contribute 69.3%.
Similarly, using CITIC’s tier-1 classification, the CSI A500 is heavily allocated to electronics, banks, power equipment and new energy, food & beverages, and pharmaceuticals, with the top three sectors comprising 27.6% and the top five 43.5% of the weighting.
When compared with indices such as the CSI A50, SSE 50, and CSI 300, the CSI A500 is underweighted in finance but overweighed in industrials and information technology. Notably, the average absolute deviation in sector allocation weights between the CSI A500 and the CSI All Share Index is only 0.36%, lower than other broad-based indices, underscoring the A500’s close alignment with the CSI All Share Index.
#6: Differences between CSI A500 and CSI 500
Overall, the CSI A500 exhibits a high degree of similarity with the S&P 500 and is poised to become the ‘Chinese version of the S&P 500,’ in our view.
On 10 September 2024, the first batch of 10 ETFs tracking the CSI A500, including the Invesco Great Wall CSI A500 ETF (fund code: 159353), was launched, enabling investors to gain exposure to the A500 through ETF products.
Relative Research Report
Research Report：《Financial Engineering: Ten Points to Watch for CSI A500》September 11, 2024
Analyst: Lin Xiaoming S0570516010001 | BPY421Analyst: He Kang S0570520080004 | BRB318
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