The Science of Finance GEMX. Randolf Tantzscher / Istanbul / June 2012

Transcription

1 The Science of Finance GEMX Randolf Tantzscher / Istanbul / June 2012

2 GEMX Index Family Current countries GEMX Overall Asia EEMEA LatAm China India Indonesia Malaysia Philippines Sri Lanka Thailand Egypt Hungary Kenia Morocco Nigeria Poland Romania Russia South Africa Turkey Brazil Chile Colombia Costa Rica Mexico Peru Uruguay \ 2

3 Index construction Country eligibility Country weighting Bond selection \ 3

4 Country eligibility Country classification Countries need to be classified as middle or low income by the World Bank Countries are added/removed from the index if the classification has changed for five consecutive years Investability indicators Investability indicators determine eligibility and weight minimum score of 50 required for original inclusion Market size Local bond market size of at least USD 3 billion At least 5 qualifying bonds \ 4

5 Investability Indicators Capital Control & Taxation Capital control & market access Securities market Money market Derivatives market Taxation Liquidity & Investor Base Liquidity Turnover Liquidity & Investor Base Bid-ask spreads BM yield curve Bond price info Domestic investor base Regulation & Infrastructure Liquidity & Investor Base Regulatory quality Regulatory quality Creditor rights Market infrastructure Clearing & settlement Safekeeping Asset servicing \ 5

6 Country weights Calculation Weight for individual countries is a combination of market size and the investability indicator Maximum weight: 10% Minimum weight: 1% Current weights (31 May 2012) Africa Asia Europe Latin America \ 6

7 Bond selection Bond type Nominal bonds (max. 15 bonds, up to 3 dual currency bonds) Fixed and zero coupon bonds with bullet or sinking fund redemption Inflation-linked debt (max. 10 bonds, up to 2 dual currency bonds) Fixed and zero coupon bonds where the coupon and redemption is linked to CPI Issuer type Central government debt only Time to maturity Minimum 1 year at each rebalancing Minimum 18 months at issuance Amount outstanding Minimum size USD 100 m local currency equivalent \ 7

8 GEMX Performance /5/ /11/ /5/ /11/ /5/ /11/ /5/ /11/ /5/ /11/ /5/ /11/ /5/ /11/2005 GEMX Markit iboxx USD EM s \ 8

9 Index characteristics Returns YTD 1 year 3 years* 5 years* GEMX 1.57 % % 7.44 % 6.18 % USD EM 3.40 % 8.11 % % 8.90 % Duration Yield 7.17 % 5.44 % Rating BBB+ BB+ # of bonds \ 9

10 Investability Indicators

11 Investability Indicators Capital Control & Taxation Capital control & market access Securities market Money market Derivatives market Taxation Liquidity & Liquidity & Investor Base Base Liquidity Turnover Bid-ask spreads BM yield curve Bond price info Domestic investor base Regulation & Infrastructure Liquidity & Investor Base Regulatory quality Regulatory quality Creditor rights Market infrastructure Clearing & settlement Safekeeping Asset servicing \ 11

12 Investability Indicators Methodology changes Methodology changes Methodology has been fine-tuned based on the experience of the last three years Increased granularity for scoring capital controls Original scoring range of for liquidity and domestic investor base extended to range Improved scoring functions for liquidity and domestic investor base Scoring benchmarked to G7 data for turnover and bid-ask spreads Updated data sources for turnover and bid-ask spreads Bid-ask spread calculation changed to yield spreads More granular scoring functions for benchmark yield curve and bond pricing Measurability challenges Non-availability of data for a number of countries only a handful of countries affected Non-availability leads to an automatic 0 score for the category No domestic data source available for liquidity data in a significant number of countries quality and completeness of available international data not guaranteed \ 12

13 Investability Indicators Score comparison Score Old methodology New methodology Bid-ask spread Benchmark yield curve Domestic investor base \ 13

14 Investability Indicators Score development Capital controls Liquidity & efficiency Regulatory quality Market infrastructure Taxation Domestic investor base Overall 40 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 \ 14

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