MarketGrader’s primary reason for the introduction of sector-specific indexes in Mainland China is to empower investors. The composition of the Mainland China equity market differs significantly in terms of size (large capitaliza- tion versus small capitalization stocks), style (growth versus value stocks) and the sector composition of the universe
of companies that trade on the (Shanghai and Shenzhen) exchanges. So even though the country-specific risk factors may be common to all the companies trading on the Mainland China equity market, the size, style and sector risk factors differ. In addition, given that the economic sector of a company is one of the most significant drivers of its stock performance, indexes that target the risk factors inherent to specific sectors can be very empowering to investors as they provide them the tools to control the exposure to the sector-specific risk factors in their portfolios.
The current joke in the Chinese gaming industry says, “there are only three gaming companies in China: Tencent Games, NetEase Games, and ‘Others.’” The cruel reality is that together, Tencent