IN THIS LIST

Introducing the iBoxx USD Liquid Investment Grade BBB 0+ Index

Defensive Strategies for the Asian USD High Yield Credit Market

TalkingPoints: Finding Resilience amid Uncertainty: A Low Volatility High Dividend Approach for the A-Share Market

China's Onshore Equities Beyond Large Caps: The S&P China A MidCap 500 Index

From Countryside to Capital Markets: The S&P/ASX Agribusiness Index

Introducing the iBoxx USD Liquid Investment Grade BBB 0+ Index

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Nicholas Godec

Head of Fixed Income Tradables

S&P Dow Jones Indices

Executive Summary

The iBoxx USD Liquid Investment Grade BBB 0+ Index seeks to track the BBB segment of the investment-grade (IG) universe.  As the IG universe has evolved in the past few years, the launch of this index comes at an opportune time for the following reasons:

  • The BBB rated segment of the USD IG corporate bond market is the largest segment of the IG credit markets, at 50% of the notional outstanding. It has become increasingly important for IG debt investors looking for incremental yield and risk exposure;
  • Further, BBB rated debt has outperformed the broader IG market on a risk-adjusted return basis;
  • BBB rated debt can offer a pickup in yield; and
  • Incorporating a basis of investment that targets the investable BBB rated segment of the USD IG bond market could help refine exposure and grant greater flexibility in positioning.

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Defensive Strategies for the Asian USD High Yield Credit Market

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Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

Market Overview (2021-Present)

International investors have long viewed the Asian USD high yield credit bond market as an alternative investment universe to the traditional U.S. high yield market. As a result, the junk bond market has undergone considerable growth, with the total issuance increasing almost sixfold between 2012 and 2020.

However, the market has seen some turbulence in the past 12 to 18 months, largely due to its high exposure to the Chinese real estate market. In the past decade, Chinese real estate companies have issued large amounts of debt at a low borrowing cost to fund their operations. This changed when Chinese regulators imposed new rules to deleverage the financial system. Meanwhile, companies were unable to turn over their inventory effectively for cash, and a liquidity crisis in the sector began to emerge.

In September 2021, China Evergrande Group, the second-largest property developer in China by sales, missed coupon payments on its U.S. debt obligation. Since then, there has been a growing list of prominent names involved in the Chinese real estate sector crisis. The top five issuers by market value as of April 2021 in the iBoxx USD Asia ex-Japan China High Yield Real Estate2 have defaulted on their USD debt obligations in the past 12 months.

As of May 31, 2022, more than 12 distinct Chinese property issuers in the iBoxx USD Asia ex-Japan Corporates High Yield had missed payments on their U.S. debt, and the total amount of issuance removed from the index exceeded USD 35 billion.

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TalkingPoints: Finding Resilience amid Uncertainty: A Low Volatility High Dividend Approach for the A-Share Market

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Izzy Wang

Analyst, Strategy Indices

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Jason Ye

Director, Strategy Indices

The S&P China A-Share LargeCap Low Volatility High Dividend 50 Index is designed to offer liquid and tradable exposure to dividends  and low volatility, two well-known risk factors that have delivered risk premium in the China A-share market in the past.

The two factors are combined through sequential dividend and low  volatility screens. Companies exhibiting high dividend yield may fall in a “dividend trap,” since high dividend yield can be caused by decreasing stock prices rather than increasing dividend payments. Overlaying a low volatility screen on a high dividend portfolio may help to eliminate the dividend trap, resulting in improved absolute and risk-adjusted returns.

Over the 10-year back-tested period, the index has shown robust return, lower risk, reduced drawdown, and cheaper valuation than its benchmark. The index may be appealing to those who wish to maintain equity exposure but limit risk or those who are interested  in increasing equity exposure without increasing risk.

Uncertainty has been a common theme throughout 2019 and rolling into 2020, with escalated risk of Covid-19. The S&P China A-Share LargeCap Low Volatility High Dividend 50 Index may help to provide an alternative for investors to ride through this challenging period.

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China's Onshore Equities Beyond Large Caps: The S&P China A MidCap 500 Index

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John Welling

Director, Global Equity Indices

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Michael Orzano

Senior Director, Global Equity Indices

Introduction

The S&P China A MidCap 500 Index seeks to provide representative exposure to mid-sized China A-shares while requiring positive earnings for index constituents and excluding sanctioned securities.  The index composition provides differentiated exposure when compared to the large-cap-focused S&P China A 300 Index due to the unique characteristics of the mid-cap size category. 

In this overview, we will explore why one may want to consider mid-cap China A-shares, including:

  • Their limited representation in conventional China and emerging market benchmarks;
  • The size and scope of the opportunity set;
  • Differentiated investment characteristics and high return dispersion compared to large-cap A-shares; and
  • A combination of both large-cap and mid-cap exposure provides broader coverage across sectors.

The methodology of the S&P China A MidCap 500 Index offers some additional potential benefits, including:

  • A profitability requirement to eliminate companies lacking a track record of generating positive earnings; and
  • The exclusion of sanctioned securities.

The Size and Scope of China A-Shares

While Chinese equities have grown in importance for international market participants, A-shares are limited to partial inclusion factors within broad benchmarks, leaving them significantly underrepresented in conventional Chinese and emerging market indices.  Without representative inclusion of A-shares, China-specific exposure within indices could be considered incomplete.

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From Countryside to Capital Markets: The S&P/ASX Agribusiness Index

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Izzy Wang

Analyst, Strategy Indices

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Jason Ye

Director, Strategy Indices

Introduction

Agriculture is the foundation of our society.  It provides food to support human’s daily nutrition needs and is the main source of raw materials such as cotton, wood and leather that are critical to major industries in the economy.  The United Nations (UN) has set “end hunger, achieve food security and improved nutrition and promote sustainable agriculture” as a global policy in its Sustainable Development Goals. By 2050, the global population is estimated to grow to 9.6 billion, demanding at least a 70% increase in food supply. While the growing population is driving demand for agricultural products, climate change, geopolitical risk and water scarcity are threatening the global food supply chain.  Most recently, the Russia-Ukraine conflict has cast immediate damage to global food supply, causing a food price increase in 2022. Since 2020, the World Bank Agriculture Price Index has increased by 52% (see Exhibit 1).

From Countryside to Capital Markets: The S&P/ASX Agribusiness Index - Exhibit 1

Australia is a major producer of many agricultural products, including wheat, wool and beef.  Its agribusiness is a vital contributor to the domestic economy, and Australia itself is a key export country in the global market.  The diversified climate and soil conditions in Australia can sustain a wide range of agricultural businesses including livestock, crops, fruit and vegetables, fisheries, and forest (see Exhibit 2).  More than half of the land and about one-quarter of the water in Australia are used in the agriculture industry. Of the agricultural production, 70% is exported to other countries, accounting for 12% of Australia’s export earnings in 2020-2021. In 2020, Australia’s sheep meat export ranked first, and its beef export ranked second in the world.

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