FTSE, Asia Index Market Overview

Indexing Strategies Asia

November 2007

Fran Thompson

Director, FTSE Asia Pacific

INDEXING IN ASIA

© FTSE LIMITED 2004. ALL RIGHTS RESERVED. ANY INFORMATION PRODUCED MUST BE DONE WITH PRIOR AGREEMENT WITH FTSE.

•Growth of institutional assets in Asia

•Investment Strategy indexing takes hold

•Unique asset classes - real estate and infrastructure

•Emerging markets

•Development of Asian exchange indices

•2008 outlook in Asian indexing

OVERVIEW

Fran Thompson November 2007Page 2 Indexing Strategies Asia 2007


Jason Hsu 28 November, 2007Page 2

Growth of Institutional Assets in Asia



Asian Pension Assets Growing

Pension Assets as a Share of GDP

0%

20%

40%

60%

80%

100%

120%

2005 2010 2015

Australia Japan Asia

* CLSA, Dec. 2005

Pension Assets as a Share of GDP

0%

20%

40%

60%

80%

100%

2005 2010 2015

Korea Malaysia China

Taiwan Singapore Thailand

India Hong Kong Indonesia

Philippines




Indexing: Investment Strategy Indices taking hold



Cap-Weighted vs Wealth-Weighted

Cap-weighted

• Macro-consistent

• Recognise future earnings growth expectations

• Occupy prime place in the benchmark hierarchy

• Highly transparent and uniquely specified

Wealth-weighted• Consistent with long-

term investment principles

• Don’t recognise future earnings growth

• No current standing in the benchmark hierarchy

• Opaque and non-unique



Cap-Weighted vs Wealth-Weighted

Cap-weighted

• Very limited rebalancing

• Subject to market bubbles

• No rebalancing effects

• Concentration in positions

• No diversity to strategies

Wealth-weighted• Rebalancing is part of

the alpha strategy • Value and anti-

momentum biases• Growth from

rebalancing• Less concentration in

positions• Diversity to strategies



FTSE/RAFI Country Weightings in Cap-Weighted World Index

Source: Research Affiliates, LLC.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

US Canada UK Germany France Italy Other Europe Asia Pacific ex Japan Japan

Japan

US



FTSE/RAFI Country Weightings in Fundamentally Weighted World Index

Source: Research Affiliates, LLC.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

US Canada UK Germany France Italy Other Europe Asia Pacific ex Japan Japan

Japan

US



0

500

1000

1500

2000

2500

3000

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

Mkt Cap Earnings Cashflow Dividends Book

Prices Follow Wealth: Developed Markets




Indexing: Unique Asset Classes



Unique Asset Classes – Real Estate

FTSE EPRA/NAREIT Asia 33 Index vs. FTSE All-World Index

Price Performance in U.S. Dollars from 18 February 2005 to 14 September 2007

80

100

120

140

160

180

200

Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07

Rebase

d V

alu

e (18 F

ebru

ary

2005 =

100)

FTSE EPRA/NAREIT Asia 33 Index FTSE All-World Index



Unique Asset Classes – Infrastructure




Indexing: Emerging markets



China – FTSE Xinhua Index



Vietnam

Source: The World Bank

80%2,254,4871,183,815China

68%51,55630,726Vietnam

Growth20052000

GNI (current US$) (millions)




Indexing: Development of exchanges and their domestic benchmarks



Classification of financial markets

FTSE Country Classification introduced in 2004 and reviews markets based on:

•Market & regulatory environment

•Custody and settlement

•Dealing landscape

•Derivatives market



Development of Asian Exchanges

Philippines

Thailand

PakistanJapan

MalaysiaHong Kong

IndonesiaSingapore

IndiaTaiwanNew Zealand

China (A share only)

South KoreaAustralia

Secondary Emerging

Advanced Emerging

Developed



Case Study 1: TSEC Taiwan

FTSE TSEC Index Series

TSEC Taiwan

50 Index

TSEC Taiwan

Mid-Cap 100 Index

TSEC Taiwan

Eight Industries Index

TSEC Taiwan

Dividend+ Index

TSEC Taiwan

Technology Index

(Small Cap)



Case Study 2: Malaysia

Burs

a M

ala

ysia

Main

Board

Fledgling

EMAS

Large Cap Mid Cap Small Cap

EMAS Shariah

Hijrah Shariah

MESDAQ

Second BoardBurs

a

Mala

ysia

Second B

oard

& M

ESDAQ

Mark

et



Case Study 3: Singapore

Straits Times Index

(30 Stocks)

FTSE ST Mid Cap Index

FTSE ST Small Cap Index

FTSE ST Fledgling Index

FTSE STAll-ShareIndex(98% of

SGX Main

Board)

13

FTSE ST

All-Share

Sector

Indices

New FTSE ST Index Family

Straits Times Index

(50 Stocks)

Current ST Index Family

FTSE STChinaIndex

7 All-Share Sector Indices



Case Study 4: Thailand

The new series is likely to be similar to other exchange indices with:

•Large cap

•Mid Cap

•Small Cap

•Fledgling




Indexing: 2008 Outlook in Asian Indexing



Global Developments

New approaches to weighting:

• Capping

• Dividends

• Fundamental factors

• Wealth weights



Asian Developments

• Emerging market institutions beginning international investment with various investment mandates. In Asia:

• China NSSF

• Taiwan Bureau of Labor Insurance

• Korea Investment Corporation



Shariah Investment

(2 indices) (6 indices) (9 indices) (4 indices) (10 indices)(16 indices)

95 global indices in total: (36 x Global Developed); (31 x Global Emerging); (28 x Global Rest of World)

Fran Thompson

Director – Asia Pacific

FTSE Group

Tel No: (852) 2230 5800

Email: [email protected]

Index assistance: [email protected]

Contact Details

FTSE, Asia Index Market Overview

Business

ftserafi country

unique asset

europe asia

emerging markets

rights reserved

research affiliates

information

tsec taiwan