Seeking exposure to China’s technology industry?
Focusing China’s economic model on technology development is proving to be a long-term trend in the country. The current undervaluation of China’s technology industry may provide investors with a good entry point.
FTSE Russell’s uncapped, market-cap weighted FTSE China Technology Index and its capped counterpart, the FTSE China Incl A 25% Technology Capped Index,are designed to represent the performance of large and mid-cap Chinese technology companies.
Whilst both indices share the same list of constituents, the capped version benefits from less concentration risk and lower volatility, allowing it to be more defensive during volatile macroeconomic periods.
What does our research mean for investors?
The defensive nature of the FTSE China Incl A 25% Technology Capped Index allows it to mitigate the impact of a falling market while still maintaining the upside potential of the industry.
Points of differentiation: FTSE China Incl A 25% Technology Capped Index
- Follows a multi-stage capping methodology. At the end of the capping process, any companies whose weights are greater than 10% will be capped at 10% or less, and the total index weight of companies whose individual weights exceed 5% will be less than or equal to 40% in aggregate
- Demonstrates a strong defensive nature with its significantly lower concentration risk and lower volatility vs. the uncapped FTSE China Technology Index
Key takeaways: FTSE China Incl A 25% Technology Capped Index
- As at the end of March 2024, Tencent alone accounted for approximately 50% of the uncapped index, while it accounted for only 11.08% in the capped index
- With its more diversified weight composition, the FTSE China Incl A 25% Technology Capped Index has historically displayed a lower annualised volatility than its uncapped counterpart over different economic cycles
- As at the end of March 2024, the trailing 12-month PE ratio of the capped Index was at 25.6x, below its 10-year average at 28.2x. The figure is also way under the PE ratio of 36.1x for the index tracking technology industry in the US
