CSI Hong Kong 100 Index Will Be Launched on May 7th, & 2008.CSI Hong Kong 100 Index Methodology

CSI Hong Kong 100 Index will be launched on May 7th, 2008.

The base date of the index is December 31st, 2004, and base point of the index is 1000.

CSI Hong Kong 100 Index Methodology

Section 1 Index Name and Index Code
Full name: CSI Hong Kong 100 INDEX;
Short name: CSI HK 100
Index Code: 000923 (SSE), 399923(SZSE)

Section 2 Base Date and Base Point
Base Date: Dec 31st, 2004
Base Point: 1000

Section 3 Constituents Selection
1.Index Universe
The index universe of CSI HK 100 includes all the Hong Kong securities listed at the HKEx satisfying the following conditions:

• Common stocks and REITs primary listed in HKEx (main board or GEM);
• The listing date of a security is more than 3 months in the most recent year unless the daily average total market value of a security since listing is ranked top 10 in all the Hong Kong securities;
• Delete securities whose daily average close price in the most recent year is less than 0.1 HKD;
• Delete securities whose daily average close price in the most recent year is less than 0.5 HKD and EPS in most recent annual report is negative;
• Delete securities whose daily average turnover ratio in the most three months is less than 0.1%;
• Delete securities considered by the Index Advisory Committee as inappropriate.

2.Number of constituents: 100
3.Selection Criteria
The selection methods are:

• Calculate the daily average trading value and daily average total market value during the most recent year for securities in the index universe, or in case of a new issue, during the time that it was a public company;
• Rank the securities in the universe by daily average trading value of the most recent year in descending order and delete the bottom ranked 50%securities;
• Rank the rest securities by daily average market value in Hong Kong market of the most recent year in descending order, those who rank top 100 are selected as index constituents.

Section 4 Index Calculation
CSI HK 100 is calculated using a Paasche weighted composite price index formula. The formula is:

Adjusted market cap = Σ (Price X Adjusted No. of shares X Weight Cap Factor X Foreign Exchange Rate). The calculation of adjusted no. of shares uses category-weighted method. Weight cap factor is between 0 and 1. The index weights of individual components are capped at 10%. The Foreign Exchange Rate from Reuters (mid-price of quote) will be used to calculate the CSI HK 100 Index (CNY).

Category-Weighted Method of CSI HK 100 is indicated by the following chart. For example, a security with a negotiable market share ratio (negotiable market cap /total market cap) of 7%, which is below 10%, will have an inclusion factor equals to its negotiable market capitalization ratio. A security with a negotiable market share ratio of 35% will belong to category (30，40]. The corresponding inclusion factor is 40%, i.e. 40% of total market share will be used for index calculation.

Category-Weighted Chart of CSI HK 100

Negotiable Market Cap Ratio (%)	≤10	(10，20]	(20，50]	(30，40]	(40，50]	(50，60]	(60，70]	(70，80]	>80
Inclusion Factor (%)	Negotiable Market Cap Ratio	20	30	40	50	60	70	80	100

The following six categories are usually deemed as non-free float by CSI:
Long term holdings by founders, families, & senior executives; Government holdings; Strategic holdings (Companies, banks); Frozen shares; Restricted employee shares; Cross holdings
Section 5 Periodical Review
Constituents of CSI HK 100 are reviewed every 6 months. Constituents are adjusted according to the periodical review which is usually held early in June and December every year and constituents adjustment are implemented on the first trading day of July and January each year.
CSI HK 100 adopts buffer zone rules for the sake of minimum turnover. Securities ranked top 80 will be given priority to add into the index and old constituents ranked top 120 will be given priority to remain in the index.
CSI will temporary adjust the constituents if needed. If temporary adjustment happens, the stocks on the most recent reserve list will be added to the index by rankings in turn instead of the deleted stock.

Section 6 The Adjustment of Weight Cap Factor
The adjustment will be implemented on the first trading day of Jan and July. The adjusted market cap of the last trading day before the review is the basis for the calculation of the weight cap factor. If the constituents are temporarily adjusted or the share structure of a constituent changes dramatically or its weight changes notable, CSI will submit the changes to the committee to decide whether to adjust the weight cap factor.

Section 7 Index Maintenance
When changes occur to constituent list or the share structure, or constituents' market value changes due to non-trading factors, the divisor is adjusted to keep the index comparable overtime, that is, CSI HK 100 adopts the "Divisor Adjustment Methodology" to adjust the old divisor.
The formula is:

Adjusted Market Cap after Adjustment = Adjusted Market Cap before adjustment + Adjusted Market Cap increased or decreased
The new divisor (also called new base period) derived from this formula is used for later index calculation.