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MSCI launches thematic indexes for investors betting on Chinese megatrends

SHANGHAI, April 28 (Reuters) - Global securities index publisher MSCI Inc on Wednesday said it has launched 20 thematic indexes to help domestic and international investors bet on megatrends in China that are aligned with the Chinese government’s strategic policy goals.

MSCI said it designed its first suite of country-specific thematic indexes to better enable investors to capitalise on long-term, structural change in technology, the environment, society and lifestyle in the world’s second-biggest economy.

The launch comes after Beijing in March formalised its 14th five-year plan focusing on high-quality, sustainable development, as the economy continues its shift toward reliance on domestic consumption and innovation and away from exports.

“Thematic investment is exactly designed to capture these types of megatrend,” said Zhen Wei, head of index solutions research for the Asia-Pacific region.

The megatrends MSCI has identified cover disruptive technology, industrial innovation and other issues vulnerable to the Sino-U.S. “tech war”, during which the United States has blacklisted a slew of Chinese tech firms on security grounds.

Doug Walls, Asia-Pacific head of index products, in an interview said MSCI’s job is to create tools for investors, saying, “we don’t take a view on those (power) rivalries.”

MSCI uses rules-based methodology to determine themes, and applies natural language processing and machine learning to public disclosure to evaluate links between megatrends and stocks.

One index, for instance, is dubbed future mobility and whose constituents include ride-sharing firms, auto battery makers and autonomous driving technology developers.

Some investors view the idea of thematic investing based on scanning disclosure as inferior to active investment as there is the risk of being exposed to brash yet unprofitable firms, or missing strong firms which provide limited information.

Still, coming as MSCI rival FTSE Russell prepares to launch its own China thematic series, the suite “reflects the fact that investors are increasingly demanding innovative tools” to help them participate in China’s growth, Walls said.

Tom Masi, portfolio manager of emerging wealth strategy at GW&K Investment Management, welcomed the development but said he remained cautious.

“These indexes may lead investors to industries and companies that are unlikely to be profitable,” Masi said.

“Additionally, the China market is very deep ... and includes many companies with very limited available information. These are unlikely to be captured by these thematic indexes.” (Reporting by Samuel Shen and Andrew Galbraith; Editing by Christopher Cushing)

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