MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

MSCI HK CHINACONNECT SELECTINDEXMETHODOLOGY
Carmona, Gerald Paul

August 2024
August 2024

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

CONTENTS 1. Introduction

3

2. Constructing the MSCI HK China Connect Select Index

4

3. Maintaining the MSCI HK China Connect Select Index

5

3.1

QUARTERLY INDEX REVIEW

5

3.1.1

Exclusion of Companies based on Business Segment Relevance Score 5

3.1.2

Selecting the Top 30 Securities

3.2

ONGOING EVENT RELATED CHANGES

List of Methodology Changes© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

7

7

10

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

1. Introduction
The MSCI HK China Connect Select Index1(the “Index”) is designed to measure theperformance of the top 30 securities by security full market capitalization in the
MSCI China and the MSCI Hong Kong Indexes that are listed on the Hong Kong Stock
Exchange2 , that adhere to Sharia investment principles. The securities must be
eligible for Southbound Trading (i.e., eligible for both buy and sell) through the
Shanghai-Hong Kong or Shenzhen-Hong Kong Stock Connect Program. The Index
applies stringent screens to exclude securities based on two types of criteria:business activities and financial ratios derived from average market capitalization.
The Index also applies a screen based on Business Segment Relevance Score. The
Index constituents are capped at 8% at an issuer level during each rebalancing.

1 The Index is governed by a set of methodology and policy documents (“Methodology Set”), including the present index
methodology document. The Methodology Set for the Indexes can be accessed from MSCI’s webpage
https://www.msci.com/index-methodology in the section ‘Search Methodology by Index Name or Index Code’.
2 including the Hong Kong listing of HSBC.

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

2. Constructing the MSCI HK China Connect SelectIndex
The Index constituents are selected and weighted based on following steps at initial
index rebalancing:•••

Determining the Screened Universe:oConstruct the parent index (“Parent Index”) by selecting all
constituents of the MSCI China Index (MSCI Index Code: 302400) and
MSCI Hong Kong Index (MSCI Index Code: 934400) that are listed on
the Hong Kong Stock Exchange, as well as the Hong Kong listing of
HSBCoApply Islamic Index M-series screening as per the MSCI Islamic
Series Methodology3oSelect securities available via the Southbound Trading of the
Shanghai-Hong Kong or Shenzhen-Hong Kong Stock Connect
Program

Selecting the top 30 securitiesoRank all securities in the Screened Universe in descending order
based on their security full market capitalizationoSelect the top 30 securities

Determining the constituent weights:oDetermine an initial weight based on the free float adjusted market
capitalization of each securityoApply a 8% capping for each issuer and redistribute the excess
weight over the remaining issuers in proportion of their free float
adjusted market capitalization weight.

3 The MSCI Islamic Series Methodology is available on: https://www.msci.com/index/methodology/latest/Islamic.

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

3. Maintaining the MSCI HK China Connect Select
Index
3.1

QUARTERLY INDEX REVIEWThe Index is rebalanced on a quarterly basis, with the pro forma Index determined
and announced nine business days before the effective date. Changes are generally
implemented as of the close of the last business day of each February, May, Augustand November, to coincide with the Quarterly Index Reviews of the MSCI Global
Investable Market Indexes.
During a Quarterly Index Review, the below steps are followed in addition to the steps
in section 2.
3.1.1

EXCLUSION OF COMPANIES BASED ON BUSINESS SEGMENT RELEVANCESCORE

An additional screen to exclude companies from the Screened Universe on the basisof Business Segment Relevance Score4 is applied. The process is explained in moredetails as below:
3.1.1.1 Company Level Data Used for Assessing Company Exposure
The following data is used at the company level:
Business segment information from company annual reports and vendor data
sources: business segment names5, assigned SIC codes6 and related revenue.
3.1.1.2 Security Selection
Companies with Business Segment Relevance Score greater than 0% are excluded.
The company level Business Segment Relevance Score is calculated as per the steps
described in the following section.

4 This screen is applied effective from the August 2024 Index Review.
5 MSCI uses the company business segment names and revenue data as of the rebalancing date of the index review.
6 Company’s business segments are assigned with a specific SIC (Standard Industry Classification) description for products
and services, used by official agencies within the US government. These descriptions provide additional information on
the nature of the segment.

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

3.1.1.3 Calculation of Company Level Business Segment Relevance Score
A discount factor is assigned to the business segment(s) of each company as per
the business segment selection criteria described in the following table.
Segment DiscountBusiness Segment Selection Criteria
FactorBusiness Segment is assigned to one or more of thefollowing SIC Codes described in Section 3.1.1.4

1

All other segments

0

The Company Level Business Segment Relevance Score is calculated as follows:Business Segment Relevance Score = sum [revenue from business segments *segment discount factor] / Total company revenue
3.1.1.4 SIC Code List
List of SIC Codes to be excluded.
SIC Code
Description
0211
Beef cattle feedlots
0212
Beef cattle, except feedlots
0213
Hogs
0214
Sheep and goats
0219
General livestock, except Dairy & Poultry
0241
Dairy farms
0251
Broiler, fryer and roaster chickens
0252
Chicken eggs
0253
Turkeys and turkey eggs
0254
Poultry hatcheries
0259
Poultry and eggs, not elsewhere classified
0271
Fur-bearing animals and rabbits
0272
Horses and other equines
0279
Animal specialties, not elsewhere classified
0291
General farms, primarily livestock
0971
Hunting, trapping, game propagation
2011
Meat packing plants
2013
Sausages and other prepared meats© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

2015
2021
2022
2023
2024
2026
2077
2099
5142
5143
5144
5147
5154
5421
5451
5812
5813

3.1.2

Poultry slaughtering and processing
Creamery butter
Natural, Processed, and Imitation CheeseDry, Condensed, and Evaporated Dairy Products
Ice cream and frozen desserts
Fluid milk
Animal and marine fats and oils
Food preparations, not elsewhere classified
Packaged frozen foods
Dairy products, except dried or canned
Poultry and poultry products
Meats and meat products
Livestock
Meat and Fish (Seafood) Markets, incl Freezer Provisioners
Dairy Products Stores
Eating places
Drinking places (Alcoholic Beverages)

SELECTING THE TOP 30 SECURITIESThe following prioritization steps are followed to select the top 30 securities:• Rank all securities in the Screened Universe after the screening for Business
Segment Relevance Score in descending order based on their security fullmarket capitalization.

3.2•

Select the top 27 securities.

•

Select any existing constituents that are ranked 28 to 33 to reach 30
constituents.

•

Select any non-current constituents based on their ranking to reach 30
constituents.

ONGOING EVENT RELATED CHANGESNo new securities are added (except where noted below) to the Index between Index
Reviews. Parent Index deletions are reflected simultaneously.

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

Securities that are no longer eligible for Southbound Trading (i.e., eligible for both
buy and sell) through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock
Connect Program are deleted giving 2 days’ notice.
Additionally MSCI reviews securities for potential exclusion following changes in
GICS according to section 3.3 of the MSCI Islamic Series Methodology7.
EVENT TYPE

EVENT DETAILSNew additions to the Parent Index

A new security added to the Parent
Index (such as IPO and other early
inclusions) will not be added to theIndex.

Spin-Offs

All securities created as a result of thespin-off of an existing index
constituent will not be added to theIndex at the time of event
implementation even if the spin-off
security is added to the Parent Index.
Reevaluation for inclusion in the Index
will occur at the subsequent Index
Review.

Merger/Acquisition

For Mergers and Acquisitions, theacquirer’s post event weight willaccount for the proportionate amountof shares involved in dealconsideration, while cash proceeds
will be invested across the Index.
If an existing Index constituent isacquired by a non-Index constituent,
the existing constituent will be deleted
from the Index and the acquiring nonconstituent will not be added to theIndex.

Transformation

A security will continue to be the Index

7 The MSCI Islamic Series Methodology is available on: https://www.msci.com/index/methodology/latest/Islamic© 2024 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

constituent if there are changes incharacteristics but remains in the
Parent Index (e.g., country
classification of the security).
Reevaluation for continued
inclusion in the Index will occur at thesubsequent Index Review.

Further detail and illustration regarding specific treatment of corporate events
relevant to this Index can be found in the MSCI Corporate Events Methodology book.
The MSCI Corporate Events methodology book is available at:https://www.msci.com/index/methodology/latest/CE.

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

List of Methodology Changes
The following section has been added since August 2024:
3.1.1 EXCLUSION OF COMPANIES BASED ON BUSINESS SEGMENT RELEVANCE
SCORE•

Methodology update to apply additional security exclusion rules.

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MSCI HK CHINA CONNECT SELECT INDEX METHODOLOGY | August 2024

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