Asian Indexes, Funds Continue To Grow

January 01, 2000

The past few months have seen more signs that Asian indexes and index funds are becoming more important to investors in the Asia-Pacific region.

And elsewhere. When S&P introduced its Asia Pacific 100 index in October, its vice president of index services, Elliot Shurgin expressed their principal hope for it: "The index could result in more fund flows into Asia from Western investors." He had another hope for it, and for S&P's other recent Asian entry, the S&P/TOPIX 150, a Japanese stock index: To build S&P's international position generally.

"For the most part, we're not viewed as global providers of indexes," he said. So S&P follows where others have gone before. "We recognize that MSCI is a formidable competitor," Shurgin said. "They were first and (Asia) is their constituency." To S&P, developing investable indexes for it is an important part of the puzzle.

State Street Global Advisors smells the scent of growing interest too. In discussing plans to follow up on a Korean index fund it introduced last summer, Vincent Duhamel, a Hong Kong-based principal for SSGA, said "Alot of financial intermediaries are asking us about setting up index funds to sell at the institutional or retail level." He added, "There's recognition at the institutional level of the benefits of indexing." Other index funds in the SSGAprogram: Hong Kong, Singapore and Taiwan, all smaller but more sophisticated than the Korean market, he said. Japan already has a host of index funds targeting the institutional market, Duhamel noted. He expressed the hope that Asian index funds would take off in the next three years or so.

Some regional players are picking up the beat too:


Amid worries about foreign investors being repelled by Kuala Lumpur's recent experiments with investment and exchange restrictions, Malaysia's Southern Bank Bhd and Southern Unit Trust Management Bhd launched that country's first all-Malaysia fund, amid hoopla featuring Malaysia's Second Finance Minister Mustapa Mohamed. Based on the Kuala Lumpur Composite Index, it is called the SBB Composite Index. Southern Unit Trust's general manager noted that all across the globe, indexa-tion continues to grow faster than the industry as a whole.


Across the South China Sea, Hong Kong's Hang Seng Bank Ltd. decided to jump in a good deal beyond its existing and very successful Hang Seng Index Fund. Add on the Hang Seng American Index Fund (tracks the S&P 500), the Hang Seng U.K. Index (tracks the FTSE 100); and three using some of the new FTSE World indexes: the Hang Seng Continental Europe Index, the Hang Seng Japan Index, and the Hang Seng Pacific Index (excludes Japan). In addition the bank threw in two new money market funds, one in US dollars and one in Hong Kong dollars.


The Unit Trust of India's Master Index Fund was actually launched in 1998, but only came into its own in 1999. Its first year saw widely expected market declines and active managers concentrating on defensive stocks easily outperformed it, often showing good gains while the general market fell. But there was a big recovery in the underlying index, the Bombay Stock Exchange's Sensex, during 1999, and the Master Fund slightly outperformed it during both market periods. Like other active managers around the world, India's have been finding it difficult to beat the index during a strong up period -which might attract investors' attention in India, as the phenomenon has done elsewhere.


The Australian Stock Exchange (ASX) pushed its long-awaited 1999 revamp of its All-Ordinaries Index to April 2000, but meanwhile developed a new, separate gold stock index to expand on and complement the gold component of the All Ordinaries. The Australian Gold Council felt the broader coverage was important enough to it to ask the Exchange for the addition. Meanwhile, plans for the spring revamp continue: It would roughly double in size to 500 companies, offer 99% coverage of the ASX, and permit a flotilla of accompanying specialized indexes designed for fund managers.


The Taiwanese had a speculative flurry this year after Morgan Stanley Capital Investment announced in August that it would revise its index series and substantially increase the weighting of Taiwanese shares in the process. Some local investors, figuring on worldwide demand as indexers reweighted their portfolios and bought Taiwan shares, started buying in. That, and concerns that Taiwan's investment restrictions might make it difficult to duplicate the revised index, led MSCI president and CEO Henry Fernandez to warn that investors should expect the new weightings would be phased in "over a new number of quarters." It was hard to tell how much of the accompanying selloff was due to the earthquake and how much to discouraged indexing speculators.


The Singapore International Mercantile Exchange (SIMEX) said it plans to launch Regional Index futures in an alliance with the Hong Kong Futures Exchange (HKFE). SIMEX president Ang Swee Tien invited other regional bourses to join in, saying they should all be joining to create new products together, competing against the US and European futures markets, and reducing "harmful" competition among themselves.


And finally, HSBC, the big British banking conglomerate, thinks the world needs its new HSBC Asian US Dollar Bond Index. It tracks Asian bonds denominated in dollars, except that it excludes Japanese debt. Explained an HSBC executive: "Investors will now have an index that helps them benchmark their portfolios and track their performance against a pool of assets that historically has not had a great degree of correlation with any other asset class."

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