CHN50: A beginner's guide to the China A50 index
The CHN50 is an index of the 50 companies with the highest market capitalisation listed on the Shanghai and Shenzen stock exchanges. It both tracks the performance of A-listed company shares and offers a benchmark for investors to access China's domestic market.
Read on to learn the fundamentals of the index, what factors drive its price movements and much more. Below, we cover:
- What the FTSE China A50 index is
- Companies in the CHN50
- How the China A50 index is calculated
- Factors affecting the value of the China A50 index
- How to trade the FTSE China A50 index
- The CHN50 opening hours
- How much you need to trade CHN50
- Benefits of the China A50 index
- Potential drawbacks
- How to get started trading the CHN50 with FXCM
What is the FTSE China A50 index?
Named the FTSE China A50 in full and CHN50 for short, this index was introduced by FTSE Russell in 2003. The 'A' in its name means that it only considers A-class shares. The 50 denotes its total constituents, which are denominated using the local Chinese currency renminbi (RMB). It has a base rate of 5,000.
The history of the index has coincided with China's rapid transition from an emerging market to a global economic superpower and key player in global supply chains. It's a journey which has led to growing demand for Chinese investments. Prior to the index's launch, Chinese A shares were only available to domestic and institutional investors.
What companies are in the CHN50?
The China A50 index features companies from a wide range of industries - healthcare, automobiles and banks, to name a few - in a bid to offer balanced representation. This means that the performance of the index generally moves in line with China's wider economic health. Yet certain industries and companies are given greater representation and weighting than others to reflect their economic importance.
Banks currently make up the most constituents of any sector at 12 of 50. The sector given the largest weighting is food, beverage and tobacco, standing at 33.57% as of September 2022. It boasts 10 constituents in total.
The top five individual constituents by weighting are:
- Kweichow Moutai (beverages, 15.51% weighting)
- Contemporary Amperex Technology (automobiles and parts, 6.45%)
- China Merchants Bank (banks, 4.58%)
- Wuliangye Yibin (beverages, 4.33%)
- China Yangtze Power (electricity, 3.41%)
The index's top 10 holdings make up 47.65% of its market capitalisation.
How is the China A50 index calculated?
In FTSE Russell's words, the China A50 is designed to offer an "optimal balance between representativeness and tradability".
The China A50 is what's known as a free-float, capitalisation-weighted index. Companies must have a market capitalisation of within the top 50 in China to gain inclusion. And to make sure that the index pricing accurately represents the opportunity available to investors, this calculation only includes shares available to the public.
Companies need to meet other criteria for listing on the CHN50, too:
- Must have a free float of over 5%
- Must be sufficiently liquid with a minimum daily trading volume of 0.04% each month in the eight months prior
FTSE Russell reviews the index in March, June, September and December of each year to make sure that it stays representative of the underlying Chinese market. This means that Chinese companies may gain or lose listed status depending on their performance compared to others. Industry and constituent weighting may also be adjusted to better reflect the conditions of the domestic Chinese market.
The China A50 index's pricing is calculated to 12 decimal places for accuracy, but only published with two decimal places to make it easier in which to trade and invest. Its total value is calculated as the sum of all its share weights.
FTSE Russell uses the trade prices on local stock exchanges for securities in the index. It then applies accurate forex rates from Reuters, making it a real-time tradable index.
What affects the value of the China A50 index?
Like other stock indexes, the CHN50 can be influenced by a broad range of factors, including:
- Company/sector performance: As discussed, the China A50 offers wide sectorial representation. But a significant change in the performance - and therefore price - of a major constituent still has potential to shift its value. The same theory applies for broader sectorial trends, such as those within food and beverage or banking.
- World events: Major stock-market-shaking events that harm investor confidence have potential to impact the CHN50 too. Like most, it took a downturn in the aftermath of the 2008 global financial crisis. Drawn-out trade talks between the US and China in 2019 also hampered the growth of the index.
- Domestic monetary policy: The domestic Chinese monetary environment is also worth monitoring. The Bank of China - China's central bank - isn't afraid to exert its power by changing interest rates and using other tools to control the economy. Lower rates can excite investors and lead to higher prices for the China A50 index, and vice versa.
It may pay to keep an eye on other factors such as GDP growth, too, which can have a knock-on effect on the CHN50. After China's exceptional economic growth in recent decades, various factors including its zero-Covid policy and weakening global demand have led it to slow dramatically in 2022. But bear in mind that past performance offers no guarantee of future results.
How to trade the FTSE China A50 index
There are limited opportunities to trade Chinese A shares directly due to strict regulations for foreign investors. But there are a few ways to trade the China A50 and therefore the Chinese market indirectly, using the index as an underlying asset.
CFDs allow you to speculate on the future value of the CHN50 without owning the asset. This makes them cash-settled rather than using physical securities. CFD trading takes place with leverage, allowing you to increase potential profits from price movements. It's flexible, too: you can take both long and short positions.
CFD trading of the CHN50 is available with FXCM. You can access and research the market and begin trading using the readily available tools on our platform.
You may also trade this index using futures contracts. This ties you into a purchase or sale by a set date, however, so your buy or sell price will be predetermined, rather than reflective of the market at the time.
What are the CHN50 opening hours?
The China 50 opening hours extend from 01:00 to 20:45 UK time from Monday to Friday, with a brief morning break between 08:30 and 08:59. This is based on the hours of its underlying exchanges, the Shanghai and Shenzen stock exchanges.
It's possible to trade outside these hours with FXCM, however, allowing you to take advantage of different opportunities.
How much do you need to trade CHN50?
Trading with leverage allows you to gain full exposure to the CHN50's movement with only a small deposit. The China A50 has a minimum value of $0.1 per point, though this may vary if your account is in a different currency. It has a target spread of 11 pips/points.
China A50 index trading: The benefits
There are several reasons why the CHN50 could be a welcome addition to your trading portfolio.
- Liquidity: Chinese investments are in demand, making the China A50 index a highly liquid asset due to the volume of activity taking place in the individual stocks of China's 50 biggest companies.
- Diversification: Despite heavier weighting towards some sectors than others, the CHN50 offers access to diverse fields such as automobiles, healthcare and industrials.
- Smooth price action: The CHN50's diverse composition in turn offers relatively strong protection from shocks affecting single companies or industries. The risk of big price gaps is also reduced.
- News coverage: The CHN50 receives widespread news coverage as the foremost equity index in one of the largest global economies. This makes your technical and fundamental analysis easier, monitoring buy and sell signals and macroeconomic variables, respectively. Both can contribute to sustainable trading success.
Is trading the China A50 index right for everyone?
It's wise to weigh up every trading decision carefully and, while the China A50 index has a lot to offer investors, there are also potential downsides to factor in.
The CHN50 is vulnerable to geopolitical and domestic events like most indexes are. Global crises and tricky trade relations, as we've mentioned, can adversely affect its performance. So, too, can domestic government policies.
These effects can be felt more at index level than individual shares, which are greater influenced by localised factors. But staying abreast of domestic and international news can help to guide your China A50 forecast and trading decisions.
Also, it's important to understand that leverage is a double-edged sword if you're accessing the CHN50 through CFDs. While it can amplify your profits, it will do the same for your losses, so you could lose more than you deposit. This dynamic may not suit more risk-averse investors.
Start trading the CHN50 today
If you're interested in trading the China A50 index with CFDs, it's easy to get set up with FXCM. You'll get access to a range of valuable tools and resources to support your trading journey, plus excellent spreads and zero commissions.
- Sign up for a free account or open a demo account to get up to speed.
- Choose a platform to download from MetaTrader4 or Trading Station. Our guide to choosing a trading platform can help if you're unsure.
- Add funds to your account. Remember that trading with leverage allows you to get started for less.
- Make your first trade. Not sure where to start? Use our guide to CFD trading and how to trade.
- Develop your skills. Our tools, webinars and free online classroom are here to help you to trade the CHN50 with greater knowledge and confidence. Visit our trading education hub.
Ready to get started? Open an FXCM account today and begin trading the world's most popular indices with leverage, including the China A50.
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