The FTSE China A50 Index is a premier financial product that represents the equities markets of mainland China. Consisting of the top 50 A-share companies listed on the Shanghai and Shenzhen Stock Exchanges, the FTSE China A50 Index is a cross section of China's most prominent corporations in terms of market capitalisation. A broad spectrum of industries are represented, including the banking, insurance, utility, manufacturing and investment sectors.
China's development from an emerging market to a global economic superpower has given rise to a tremendous demand for Chinese equities. However, a strict regulatory environment regarding foreign investiture has limited availability to international investors.
The FTSE China A50 serves as the basis for many products that facilitate access to China's A-share markets for traders and investors around the globe.
The FTSE Russell
In order to address the demand for international equities products, the Financial Times Stock Exchange (FTSE) and Frank Russell Company formed the FTSE Russell. Featuring the exclusive methodology behind the popular FTSE 100 and Russell 2000 equities indices, FTSE Russell has pioneered several index products facing the Chinese equities markets:
- FTSE China All Means
- FTSE China A50 Index
- FTSE China A200 Index
- FTSE China A400 Index
- FTSE China A600 Index
- FTSE China A Small Cap Index
- FTSE China A Dividend 150 Index
The FTSE Russell index products for China are referenced by a broad spectrum of financial industry professionals worldwide. Institutional investors, asset managers, advisors and academics implement the metrics in a variety of unique business ventures. The products act as the basis for some of the the world's most popular electronic traded funds (ETFs), in addition to being the preferred index for over 50 ETF providers around the world.
A-Shares: Market Dynamics And Accessibility
The term "A-shares" refers to corporate stocks that are listed on the two mainland Chinese exchanges: the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). There are more than 2,100 A-shares listed in mainland China (as of January 2018) that are traded in a highly regulated capacity. A-shares are denominated under the domestic currency renminbi (RMB). In contrast, "B-shares" are open to both foreign and domestic investiture while being denominated in a variety of foreign currencies.
A-share offerings afford investors several advantages over the B-share markets:
- Extensive number of corporate listings
- Diversity of sector representation
- Both small caps and large caps are available
Foreign access to A-shares is strictly regulated and limited to specific institutional participants.
According to the Qualified Foreign Institutional Investor (QFII) program, only select international entities are allowed to invest in A-shares. In order to qualify, firms must meet the criteria of the China Securities Regulatory Commission (CSRC):
- A minimum of two years investment experience
- £370 million in annual managed securities
- Clean record for the preceding three years
- Adequate capitalisation and credit status
Upon these requirements being met and the institution approved by the CSRC, a specific quota of investment dollars is allocated to the firm by the State Administration of Foreign Exchange (SAFE). Allotment sizes vary depending on a variety of factors. In addition, specific restrictions govern how the foreign institution may allocate said funds.
Trading The FTSE China A50 Index
Aside from being a financial institution with a QFII designation, there are limited opportunities for interested parties to directly engage China's A-shares markets. However, there are several ways to trade the FTSE China A50 indirectly. The index acts as the underlying asset for many ETF, contract for difference (CFD) and exchange-based futures instruments.
Valuations of the following products track the pricing of the FTSE China A50 directly:
- ETF: FTSE China A50 ETFs afford individuals the opportunity to achieve long-term and short-term investment objectives minus the drawbacks of traditional mutual funds. Required position sizes are smaller and leverage options are available. A few of the most popular FTSE China A50 ETFs are the iShares FTSE A50 China Index HKD and the CSOP FTSE China A50.
- CFD: Technically classified as an "index CFD," FTSE China A50 CFD products furnish traders with the ability to take long or short positions either for or against the market. The availability of these instruments is dependent upon geographical region and brokerage firm.
- Futures: The FTSE China A50 acts as the underlying asset for various futures contracts listed on several globally prominent exchanges. Related futures products are valued according to the pricing fluctuations of the index itself. In a similar fashion to CFDs, shorting is permitted and leverage is readily available. Popular contracts are the E-mini FTSE China 50 listed on the Chicago Mercantile Exchange (CME) and the SGX FTSE China A50 from the Singapore Exchange (SGX).
Derivative products facing the FTSE China A50 furnish traders and investors with numerous advantages over simply purchasing individual equities. Options for implementing leverage, taking long or short positions and investment liquidity are a few of the primary reasons why market participants prefer these avenues over direct investment in the index itself.
Over the last 20 years, the performance of China's economy has been consistently robust. Annual GDP growth rates have ranged from a high of 14.2% to lows of 6.68%, eclipsing those of the U.K. and EU by wide margins. The economic prowess exhibited by China has drawn the interest of investors around the globe and bolstered the popularity of the FTSE China A50 Index.
The FTSE China A50 is a versatile product. It is used by financial professionals around the globe to gauge the relative strength of the Chinese equities markets. Due to its diverse sectoral representation, it is an important barometer of China's aggregate economic performance. Institutional investors, as well as retail traders, use the FTSE China A50 for speculative and hedging purposes on a regular basis.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…