CSI MarketGrader China New Economy Index


Base Date:

December 31, 2007

No. of Components:

120

Minimum Market Cap:

RMB 1.4 billion

Minimum Daily Avg. Liquidity:

RMB 14 million

Sector Limit:

25% (30 companies)

Geographic Exposure:

Mainland China

Rebalance Frequency:

Semi-annual

Underlying Universe:

All A shares listed in the Shanghai and Shenzhen Stock Exchanges that are covered and rated by MarketGrader, that are not "ST" stocks, and are classified as Consumer Discretionary, Consumer Staples, Health Care of Technology.


Methodology


Selection
All index components are selected based on their overall MarketGrader grade. Built on a scale between zero and 100, our overall grade is based on 24 fundamental indicators, or factors, which are divided into four categories, with six indicators each: Growth, Value, Profitability and Cash Flow. All of our indicators and our overall company grades are calculated daily for all companies under coverage.


Equal Weighting
All index constituents are equally weighted every time the index is rebalanced. No weight modifications or adjustments are made to the index between rebalance periods.


Liquidity
All index constituents must have a minimum total market cap of RMB 1.4 billion, a minimum 3-month daily traded value of RMB 14 million and at least RMB 350 million in aggregate trading volume in the trailing 12 months preceding the index selection date. At least 20% of all index constituents (24 companies) must be designated as large or mid caps according to MarketGrader's annual size classification of all Shanghai and Shenzhen-listed equities under coverage.


Classification
Stocks in the index are classified based on the CSI Classification System.


Diversification
The index is rebalanced twice a year, on the third Friday of March and September.At least 20% of index constituents (twenty-four companies) must be designated as large caps by MarketGrader based on our annual classification by size of all Chinese equities under coverage.


Rebalance Discipline
The index is reconstituted and rebalanced twice a year on the next trading day after the close of trading on the second Friday in June and December. The new index selections for the period are made on the Tuesday prior to the rebalance date.

Strategy

The MarketGrader China New Economy Index seeks to follow the most fundamentally sound companies with the best growth prospects in the Consumer Staples, Consumer Discretionary, Technology, and Health Care sectors that are domiciled and listed in Mainland China. Along with the rest of MarketGrader’s China Sector indexes, it seeks to give local and global investors the opportunity to gain exposure to the best companies in China, with the best growth at a reasonable price (GARP) attributes, while acting on their views on a sector-specific basis. Since the index is equally weighted, it gives each company an equal opportunity to contribute to its overall performance regardless of size or affiliation with the state.




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