Singapore - Markit, a global, financial information services company, today announced changes to the rules governing the market weighting of the Markit iBoxx Asia ex-Japan indices.
Under the new rules, the Markit iBoxx Asia ex-Japan’s “market functionality” factor, a measure of market efficiency, and “bond market turnover” factor will be combined and replaced with the GEMLOC Investability Indicators, a transparent measure of investability developed by the World Bank. Market functionality was previously based on a poll of Markit iBoxx Asia Technical Committee members.
The GEMLOC Investability Indicators are based on a transparent and objective methodology, which is publicly available alongside data sources. They use a multi-factor score based on turnover, bid-ask spreads, benchmark yield curve and bond pricing data to assess market liquidity. This method offers a deeper and more detailed view of liquidity than pure turnover measures.
In addition, markets with high capital access restrictions will be capped at 50% of their original weight to reflect constraints facing investors in local currency bond markets. Markets to which access is prohibited will be completely excluded from the index. The degree of market access will be measured by GEMLOC Investability Indicators’ Securities Market Access Score.
The new rules have been reviewed by the Markit iBoxx Asia Oversight Committee and will be implemented during a six-month transition period starting October 31 2012 and ending March 31 2013.
Markit will now publish quarterly predictions in order to help index users gauge potential weight changes in advance of the annual weight reviews. The predictions will be freely available on www.markit.com.
Notes to Editors:
About Markit iBoxx Asia ex-Japan Indices
The Markit iBoxx Asia ex-Japan indices track the performance of local currency denominated bonds issued by government and quasi-government entities in the following ten Asian markets: China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand. They are fundamentally weighted to reflect the varying levels of liquidity and investor access of the individual markets represented in the indices. Rule changeThe full rule change is as follows: market functionality and turnover are combined into one indicator and are replaced by the Gemloc Investability Indicators. Additional restrictions for markets with high access restrictions are introduced. All other aspects of the annual market weights review remain unchanged.
|Current rules||New rules|
|Market Size||Indicator: ||Local bond market size||Local bond market size|
|Data source:||Asianbondsonline and official local sources||Asianbondsonline and official local sources|
|Credit Rating||Indicator: ||Best local currency sovereign debt rating||Best local currency sovereign debt rating|
|Data source:||Fitch, Moody’s, Standard and Poor’s||Fitch, Moody’s, Standard and Poor’s|
|Liquidity||Indicator: ||Turnover ratio|| Indicator: || Gemloc Investability Indicators|
| ||Weight: ||20%|
| ||Data source:||Official local sources for each market|| Weight: || 60%|
|Investability||Indicator: ||Market functionality score|
| ||Weight: ||40%||Data Sources: ||Indicators maintained by Amba Research. Individual data sources as described in the Gemloc Investability Indicator Methodology|
| ||Data source:||Markit iBoxx Asia Technical Committee|
|Additional restrictions for markets with low securities market access scores||None||Weight of markets with a securities market access score of 0: 0% (market excluded from the index) Weight of markets with a securities market access score between 1 and 50: 50% of original weight|
The indicative changes to each market’s weight are outlined in the table below. The final 2012 weights for each market will be determined in September:
Markit iBoxx Asia Ex-JapanConstituents
|Current weight||Indicative weight under the new methodology||Change|