Core Viewpoint - Index rebalancing is a process that ensures the vitality of indices by removing stocks that do not meet criteria and adding new ones, which can impact the valuation of various indices [3][4][5]. Group 1: Index Rebalancing Types - Index rebalancing can be categorized into two types: temporary adjustments due to special events and regular adjustments based on sample stability [6][9]. - Temporary adjustments are rare, while regular adjustments occur periodically, such as every quarter or semi-annually [7][12]. Group 2: Frequency and Timing of Regular Rebalancing - Regular rebalancing occurs at different frequencies: quarterly, semi-annually, or annually, with specific dates for major indices like the CSI 300 and CSI 500 [13][14][16]. Group 3: Impact on Valuation - The recent rebalancing has led to changes in average valuations for various indices, with the CSI 300 and CSI 500 seeing increases in both price-to-earnings (P/E) and price-to-book (P/B) ratios [17][22][23]. - The CSI 2000 index, however, experienced a decrease in valuation due to the removal of loss-making companies, which increased the average earnings denominator [26]. Group 4: Strategy Indices Valuation Changes - Strategy indices like the CSI A500 and CSI Dividend have shown varying impacts on valuations post-rebalancing, with some indices experiencing increases while others, like the CSI Value, typically see decreases [31][32][39]. Group 5: Investor Considerations - Investors do not need to take action during index rebalancing, as it is managed by fund managers, and they should continue to hold their investments [59][61]. - The rebalancing process can lead to changes in index valuations, which may enhance the investment value of certain indices, particularly those with value strategies [62].

Group 1 - The core concept of index rebalancing is the adjustment of constituent stocks according to the index's compilation rules, ensuring the index's vitality by removing stocks that do not meet the criteria and adding new ones [3][4] - There are two main types of index rebalancing: temporary rebalancing, which occurs due to special events affecting the index's representativeness, and regular rebalancing, which is conducted periodically based on sample stability and dynamic tracking [5][9] - Regular rebalancing occurs at different frequencies, such as quarterly, semi-annually, or annually, with specific dates for major indices like the CSI 300 and others [14][15] Group 2 - The impact of the latest rebalancing on index valuations shows that the average price-to-earnings (P/E) ratios for the CSI 300 and other indices have increased, while the CSI 2000's valuation has decreased [18][20] - Value and low-volatility strategy indices tend to see a decrease in valuation after rebalancing, which may enhance their investment attractiveness [19][20] - The issue of "buying high and selling low" is prevalent in market capitalization-weighted indices, where stocks that have risen significantly are included, while those that have fallen are excluded, leading to potential pitfalls during market corrections [21][26] Group 3 - Solutions to mitigate the drawbacks of market capitalization-weighted indices include considering strategy indices that do not rely on market cap for stock selection, thus avoiding the "buy high, sell low" scenario [27][32] - Index-enhanced funds, which invest 80% in index constituents and 20% in enhanced operations, can help avoid stocks with clear bubbles [34] - Despite their drawbacks, market capitalization-weighted indices like the CSI 300 remain significant due to their capacity to accommodate large amounts of capital, making them essential in the market [37][39]

Core Viewpoint - Index rebalancing is a process that ensures the vitality of indices by removing stocks that do not meet criteria and adding new ones, which can lead to changes in stock valuations and investor strategies [3][5][6]. Group 1: Index Rebalancing Process - Index rebalancing is akin to a metabolic process, ensuring that indices remain representative and investable [4]. - There are two main types of index rebalancing: temporary adjustments due to special events and regular adjustments based on sample stability [7][9]. - Regular rebalancing occurs at different frequencies, such as quarterly, semi-annually, or annually, depending on the index [14][15]. Group 2: Impact on Valuations - The recent rebalancing on June 13 affected various indices, with changes in the number of stocks and their average price-to-earnings (P/E) and price-to-book (P/B) ratios [20][18]. - For instance, the Shanghai-Shenzhen 300 Index saw a decrease in P/E and a slight increase in P/B after adjusting 7 stocks [23]. - The CSI 500 Index experienced an increase in both P/E and P/B after replacing 50 stocks [24]. Group 3: Strategy Indices - Strategy indices, such as the CSI A500 and value strategies, often see different valuation impacts compared to market-cap weighted indices [30][32]. - The CSI A500 Index's recent rebalancing led to a decrease in P/E and a slight increase in P/B [31]. - The 300 Value Index typically sees a decrease in valuation metrics due to its focus on low P/E and P/B stocks [32]. Group 4: Market Behavior and Investor Strategies - Market-cap weighted indices can lead to a "buy high, sell low" scenario, as stocks that rise in value are included while those that fall are excluded [43]. - This phenomenon has historical precedence in markets like the U.S. during the tech bubble, where high-flying stocks were included in indices, leading to greater declines when the bubble burst [45]. - To mitigate these effects, investors may consider strategy indices that do not rely on market capitalization, thus avoiding the pitfalls of chasing high valuations [47][51].