Great Wall of China

MSCI launches Barra China Equity Model (CNE5)

MSCI, a provider of investment decision support tools, has launched the Barra China Equity Model (CNE5), which captures the short and long term dynamics of the Chinese local market and includes the latest advances in risk methodology.

The enhanced model captures the new reality of the Chinese equity markets particularly the richness of the market factor structure, and provides more explanatory power than its predecessor.

Zhen Liu, managing director of E Fund Management, an MSCI client, says: “The Barra China Equity Model CNE5 is a major improvement over its predecessor, CHE2, with better industry classifications, new China-specific factor set, and much updated modeling methodology as used in the Barra US Equity Model USE4.”

One of the key features of Barra CNE5 is the introduction of a daily forecast horizon model. The CNE5 Daily Model is particularly suitable for portfolio managers that trade and rebalance their portfolios frequently to capture short term market dislocations. The Daily Model provides portfolio managers with a better understanding of their sources of risk and return in the short run, and the ability to analyse how their factor tilts affect their portfolio risk and performance.

The new model leverages the innovations of the Barra methodology, the Volatility Regime Adjustment (with daily cross-sectional volatility adjustments), which makes the model more responsive to market shocks. This methodology was launched in 2011 and first introduced in the Barra US Equity Model, USE4.

“Barra CNE5 marks the beginning of a new class of equity models, the daily horizon model,” says Peter Zangari, managing director of equity portfolio management analytics at MSCI. “This is yet a continuation of MSCI’s model developments designed to improve the accuracy and stability of risk forecasts. We understand what our clients’ needs are, what’s happening in the marketplace and we continue to build next-generation models – and innovate.”

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