CSIMarketGraderAugust 2018

ChinaNewEconomyIndex

TheCSIMarketGraderChinaNewEconomyIndexseekstofollowthemostfundamentallysoundcompaniesdomiciledandtradedinChinathatbelongtotheConsumerDiscretionary,ConsumerStaples,HealthCareandTechnologysectors*.

InvestmentObjective

R E S E A R C H & I N D E X E SMarketGrader

*SectorclassificationisbasedonChinaSecuritiesIndexCompany’s1stlevelsectorclassification.

China’seconomyisundergoingaprofoundtransformationinwhichitsserviceandconsumer-orientedsectorsaregraduallyreplacingfixedinvesting,heavyindustryandlowcostmanufacturingasthecountry’seconomicengines.AtMarketGraderwebelievethatcapitalmarketswillplayaninstrumentalroleinchannelingthecountry’svastsavingsintoprivateenterprise,achievingthetwingoalsofadevelopedeconomy;namelytoensurethatitscitizenspartakeinthecountry’seconomicprosperitythroughbroadshareownershipandtocreateastableanddependablesourceoffinancingforthecountry’seconomicengine.

InvestmentThesis

R E S E A R C H & I N D E X E SMarketGrader

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CSI MarketGrader China New Economy Index Methodology

R E S E A R C H & I N D E X E SMarketGrader

UnderlyingUniverseAllAshareslistedintheShanghaiandShenzhenStockExchangesclassifiedbyCSIasConsumerDiscretionary,ConsumerStaples,HealthCareorTechnologycompanies.

UnderlyingUniverse•  StockmustbecoveredandratedbyMarketGrader•  Stockcannotbeclassifiedas“ST”or“restricted”byCSI•  Stock’slistingcannotbesuspended

Size,Liquidity&ReportingRequirements•  MinimummarketcapofRMB1.38billiononselectiondate•  Minimumthree-monthaveragedailytradedvalueofRMB13.8million•  Minimumtrailing12-monthaggregatetradingvolumeofRMB345million•  Atleastsixcompaniesineachsectorsub-indexmustbedesignatedas‘largecap’byMarketGrader*•  Allcompaniesmusthavefiledquarterlyorannualfinancialstatementswiththeirlocalregulatorwithinthe12monthsprecedingtheindexrebalancedate

*MarketGraderclassifiesannuallyallChinaA-sharesthatcomprisethetop85%ofthecountry’saggregatemarketcapitalizationas‘largecap.’

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CSI MarketGrader China New Economy Index Facts

R E S E A R C H & I N D E X E SMarketGrader

IndexCode:930984IndexCalculation:ChinaSecuritiesIndexCo.ConstituentRatings&Selections:MarketGraderIndexBaseDataandBaseLevel:Dec.31,2007/1000*

ConstituentWeighting:EqualWeightingatRebalanceRebalanceDates:FirsttradingdayafterthesecondFridayofJuneandDecember

*TheCSIMarketGraderChinaNewEconomyIndexwasfirstpublishedonMarch20,2015.Allpriordataisbacktested.

MarketGradergradesapproximately2,900ASharesbasedon24fundamentalfactors,groupedinGrowth,Value,ProfitabilityandCashFlowcategories.Seeexamplebelow:

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1. GROWTH A- Market Growth LT B+

Market Growth ST A

EPS Weighted Growth A+

Growth Potential b

Earnings Impact A-

Earnings Surprise B

2. VALUE A- Capital Structure A

P/E Analysis B+

Price/Book Ratio A-

Price/Cash Flow Ratio B+

Price/Sales Ratio B-

Market Value B+

3. PROFITABILITY A Asset Utilization A+

Capital Utilization B+

Operating Margins A-

Relative Margin A+

Return on Equity A

Gross Profitability A+

4. CASH FLOW A+ Cash Flow Growth A+

EBIDTA Margin B

Debt/Cash Flow Ratio A+

Interest Coverage Ratio A+

Economic Value Added A+

Working Capital Ratio A+

HUBEIJUMPCANPHARMACEUTICALCO.,LTDClassA(600566.CN)OverallGrade:86.6

MarketGrader’s Stock Selection: Focus on Fundamentals

R E S E A R C H & I N D E X E SMarketGrader

GradesandratingsforGreeElectricAppliances(000651.CN),amemberoftheCSIMarketGraderChinaNewEconomyIndex,asofNovember9,2018.Source:MarketGraderResearch.

Fundamental Difference: Index Selection Is Driven by Overall Rating

HUBEIJUMPCANPHARMACEUTICALCO.,LTDClassA(600566.CN)

OverallGrade:86.6,Rating:BUY

ChinaShipbuildingIndustryCompanyLtd.ClassA(601989.CN)OverallGrade:18.2,Rating:SELL

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ExampleofthedifferenceinfundamentalgradesfortwoASharecompaniesaccordingtoMarketGrader

GradesandratingsforHUBEIJUMPCANPHARMACEUTICALCO.,LTDClassA(600566.CN)asofNov9,2018&ChinaShipbuildingIndustryCo.(601989.CN)asofAug.9,2018.Source:MarketGraderResearch.

A+

A

A-

B+

BB-

C

DF

F

F D C B- B B+ A- A A+A+ A A- B+ B B- C D F

D

C

B-

BB+

A-

AA+

11

11

22

22

33

33

44

44

55

55

66

66

GROWTH = CMarket Growth Long Term (1)

Market Growth Short Term (2)

EPS Weighted Growth (3)

Growth Potential (4)

Earnings Impact (5)

Earnings Surprise (6)

VALUE = B-(1) Capital Structure

(2) PE Analysis

(3) Price To Book Ratio

(4) Price To Cash Flow Ratio

(5) Price To Sales Ratio

(6) Market Value

Asset Utilization (1)

Capital Utilization (2)

Operating Margins (3)

Relative Margin (4)

Return On Equity (5)

Gross Profitability (6)

(1) Cash Flow Growth

(2) EBITDA Margin

(3) Debt To Cash Flow Ratio

(4) Interest Coverage Ratio

(5) Economic Value Added

(6) Working Capital Ratio

CASH FLOW = CPROFITABILITY = D

B-CD

C

A+

A

A-

B+

BB-

C

DF

F

F D C B- B B+ A- A A+A+ A A- B+ B B- C D F

D

C

B-

BB+

A-

AA+

11

11

22

22

33

33

44

44

55

55

66

66

GROWTH = A- Market Growth Long Term(1)Market Growth Short Term(2)

EPS Weighted Growth(3)Growth Potential(4)Earnings Impact(5)

Operating Income Growth(6)

VALUE = B+(1) Capital Structure(2) PE Analysis(3) Price To Book Ratio(4) Price To Cash Flow Ratio(5) Price To Sales Ratio(6) Market Value

Asset Utilization(1)Capital Utilization(2)

Operating Margins(3)Relative Margin(4)

Return On Equity(5)Gross Profitability(6)

(1) Cash Flow Growth(2) EBITDA Margin(3) Debt To Cash Flow Ratio(4) Interest Coverage Ratio(5) Economic Value Added(6) Working Capital Ratio

CASH FLOW = A+ PROFITABILITY = A

B+A+A

A-

CSI MarketGrader China New Economy Index Selection Process

1Collect Financial

StatementsCalculate

Fundamental GradesCalculate Overall

Grade & RatingApply Market Cap &

Liquidity FiltersSector

SelectionBuild New Economy

IndexSemi-Annual

Rebalance

2 3 4 5 6 7

2,900 A Shares

Pick Top 30 Companies in:

120 Companies

GrowthX 6

Market Cap Minimum: RMB 1.4 Billion

3-Month Trading Volume Minimum: RMB 14 Million (Daily)

12-Month Aggregate Volume Minimum: RMB 350 Million

ConsumerDiscretionary

CombineFour Sector Indexes and Equally-Weight All Constituents

Repeat this process Every June and December

60 to 100BUY

50 to 60HOLD

0 to 50SELL

ValueX 6

ProfitabilityX 6

Cash FlowX 6

IncomeStatement

BalanceSheet

Cash FlowStatement

EarningsEstimates

CSI MGChina New Economy IndexConsumer

Staples

Health Care

Technology

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CSI MarketGrader China New Economy Index Snapshot

9R E S E A R C H & I N D E X E SMarketGrader

AverageMarketCap RMB46,451.04

MedianMarketCap RMB14,348.90

Average3Mo.RMBVolume RMB274,738,013.76

Average3Mo.TradingVolume 9,712,467.00

LastRebalanceDate 6/11/18

CompaniesReplaced 50

LargestCo:KweichowMoutai,Co.–RMB853billion

SmallestCo.:ShanghaiCarthaneCo.–RMB2.2billion

TrailingP/ERatio 27.1

ForwardP/ERatio 20.1

EarningsYield 3.8%

Price/BookRatio 5.9

RevenueChange-3Years 98.8%

OperatingIncomeChange-3Years 177.4%

OperatingMargin 24.5%

EarningsperShare(EPS)3-YearGrowth 30.4%

Long-TermDebttoCapital 6.6%

ReturnonEquity 20.4%

DividendYield 1.03%AllfiguresasofJune30,2018.Source:MarketGraderResearch

IndexBio FundamentalAttributes

CSI MarketGrader China New Economy Index Constituents

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002626.CN XiamenKingdomwayGroupCo 90.2

002001.CN ZhejiangNHUCoLtd 83.0

300113.CN HangzhouShunwangTech. 82.7

300176.CN GuangDongHongTeoTech. 81.4

300296.CN LeyardOptoelectronicCo.,Ltd. 81.4

600566.CN HUBEIJUMPCANPHARMACEUT. 80.4

603808.CN SHENZHENELLASSAYFASHION 80.2

603589.CN AnhuiKouziDistilleryCo.,Ltd. 80.0

002680.CN ChangshengBio-technologyCo. 79.9

002019.CN YIFANPHARMACEUTICALCO. 79.0

000813.CN XinjiangTianshanWoolTexStock 78.7

600519.CN KweichowMoutaiCoLtd 23

000568.CN LuzhouLaoJiaoCoLtd 20

000858.CN WuliangyeYibinCoLtd 20

000848.CN HeBeiChengDeLoloCoLtd 19

600887.CN InnerMongoliaYiliIndustrialGroup 18

600809.CN ShanxiXinghuacunFenWineFact. 17

600763.CN TopChoiceMedicalInvestmentCo. 16

600197.CN XinjiangYiliteIndustryCoLtd 16

002304.CN JiangsuYangheBreweryJoint-Stock 16

002032.CN ZhejiangSuporCo.,Ltd 16

002001.CN ZhejiangNHUCoLtd 14

CompanygradesasofJune30,2018.Source:MarketGraderResearch

Top10FundamentalGrades MostSelectionsSinceInception

CSI MarketGrader China New Economy Index Performance

11R E S E A R C H & I N D E X E SMarketGrader

-100.00%

-50.00%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

CSI MarketGrader China New Economy (201.49%)

SME-ChiNext 100 (30.44%)

CSI All Share (-9.70%)

CSIMGNE SMEChiNext ChiNext CSIAllShare3-Years -1.00% -9.50% -15.40% -10.80%5-Years 18.40% 8.60% 10.20% 11.60%Since12/31/07 11.10% 2.60% - -1.00%

AnnualizedReturnsCSIMGNE SMEChiNext ChiNext CSIAllShare

3-Years -2.90% -26.00% -39.30% -29.00%5-Years 132.20% 51.30% 62.40% 72.80%Since12/31/07 201.50% 30.40% - -9.70%

CumulativeReturns

CumulativeTotalReturn,Dec.2007–Jun.2018

AllvaluesinRMB;allperformancefiguresarebasedontotalreturns.TheCSIMarketGraderChinaNewEconomyIndexwasfirstpublishedonMarch20,2015.Alldatapriortothatdateisbasedonanindexbacktest.Sources:ChinaSecuritiesIndexCo.,MarketGraderResearch,Bloomberg.