Changes have been made to the Global Industry Classification Standard (GICS), a system that index providers and investment managers use to classify businesses into sectors and sub-sectors. Among the changes, a new Communication Services sector replaces the former Telecommunication Services sector. In addition, certain e-commerce companies have moved from Information Technology to either the Communications Services or Consumer Discretionary sectors. In this Q&A with Matthews Asia Portfolio Strategist Jeremy Murden, we review the changes to the GICS sector structure and discuss their implications for investors.

What is GICS?

The Global Industry Classification Standard (GICS) is an industry classification system for all major public companies. It was developed in 1999 jointly by Standard & Poor's and MSCI and has since become the standard sector reporting system for index providers and asset managers globally, including Matthews Asia.

What is changing and why?

In the largest change to GICS since its inception, the Telecommunications Services (Telecom) sector was broadened and renamed Communication Services. The expanded and renamed sector will now include companies that facilitate communication and offer content and information through various forms of media. These changes are being made to better reflect modern communication and information delivery.

Many of the companies that are moving to the newly constituted Communication Services sector were formerly classified as interactive media and services companies within the Information Technology (IT), sector. This includes the megacap Chinese internet companies Tencent and Baidu, their U.S.-based peers including Facebook and Alphabet (Google), and media and entertainment companies such as NetEase, Nintendo and Momo. Media companies including Naspers and Netflix that were formerly included in the Consumer Discretionary sector also have moved to the newly formed Communication Services sector.

Additionally, all remaining e-commerce companies have moved from the IT sector to Consumer Discretionary, regardless of whether they hold inventory. This move included online marketplace Alibaba and its peers globally, while Amazon has always been classified as a Consumer Discretionary stock.