Singapore - Markit, a global, financial information services company, today announced changes to the rules governing the market weighting of the Markit iBoxx ABF Pan-Asia indices.
Under the new rules, the Markit iBoxx ABF’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.
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.
About Markit iBoxx ABF Pan-Asia Indices
The Markit iBoxx ABF Pan-Asia indices track the performance of local currency denominated bonds issued by government and quasi-government entities in the following eight Asian markets: China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea and Thailand. They are fundamentally weighted to reflect the varying levels of liquidity and investor access of the individual markets represented in the indices.
The full rule change is as follows: market functionality and turnover are combined into one indicator and are replaced by the Gemloc Investability Indicators. All other aspects of the annual market weights review remain unchanged.
|Weighting factors||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|
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 ABF Pan-AsiaConstituents||Current weight||Indicative weight under the new methodology||Change|