The Chinese Market Understanding the Indices - Union Securities Switzerland
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The Chinese Market Understanding the Indices
Introduction Investor often wonder what is the best way to invest in Chinese equities and what is the best index to measure the performance of the their investment. Chinese companies typically list their shares on one or more exchanges in mainland China, Hong-Kong or in the US as ADRs. For that reason, the many Chinese equity indices have a very different compositions and performances. In this document, we analyse the differences between the most used indices. China’s mainland stock markets had historically been difficult to access for foreign investors amid quota systems and capital controls. Recent changes of exchange regulations allow international investors to access mainland listed stocks. These regulation changes were critical in MSCI’s decision to increase the A shares’ proportion in its indices. In 2019 MSCI increased the inclusion ratio of China A shares from 5% to 20% in the MSCI Emerging Markets Index (no future weight increase is currently planned, as it would require Chinese authorities to address a number of remaining market accessibility questions). The development of Chinese equities ETF’s offering, in addition to MSCI’s decision, has permitted investors to invest more easily in China. Some indices have similar performance patterns due to their main constituents and can be regrouped : o MSCI China (HKD) and S&P 500 China (HKD) o MSCI China A (USD), CSI 300 (CNY) and FTSE 50 China (HKD) o HIS (HKD), HSCEI (HKD) o Shanghai Composite (Renminbi) and Shenzhen Composite (Renminbi) February 3, 2021 2
Chinese Main Indices February 3, 2021 3
Chinese Main Indices
MSCI China Index
o It covers 85% of the equity universe and across all types of Chinese shares, including foreign listings (e.g. ADRs).
o It has an exposure to large and mid-cap companies. 20% of the large & mid-cap A Shares are included.
Hong Kong Hang Seng China Enterprises (HSCEI Index)
o Reflects the performance of the 50 largest Chinese H-shares listed in Hong Kong.
o It has a 10% cap on each constituent’s weight.
Hong Kong Hang Seng (HSI Index)
o Reflects the performance of the largest stocks listed in Hong Kong.
o It is composed of only a few sectors: industry, finance, utilities, and Real Estate.
o It has a 10% cap on each constituent’s weight.
Hang Seng TECH (the “Hong Kong’s Nasdaq”, HSTECH Index)
o Reflects the performance of the 30 largest technology companies listed in Hong Kong.
o Stocks must have high business exposure to technology themes, such as Hardware, Semi-Conductors, e-commerce, FinTech or Software. It has a 8% cap on each
constituent’s weight.
Shanghai Composite (SHCOMP Index)
o Reflects the performance of all stocks (A and B shares) listed in Shanghai.
Shenzhen Composite (SZCOMP Index)
o Reflects the performance of the 500 largest A-shares listed in Shenzhen.
February 3, 2021 4The Chinese Market
There are different markets where Chinese companies can list their stock.
The Chinese Mainland market
o A-Shares are quoted in Chinese Renminbi and B-Shares are quoted in foreign currencies. Both type of shares are difficult to invest in for foreign investors.
o The 2 principal mainland indices are the Shanghai Composite and the Shenzhen Composite. The Shanghai Composite Index tracks A-Shares and B-Shares listed in
Shanghai. The Shenzhen Composite tracks the 500 largest A-shares listed in Shenzhen.
The Hong-Kong Market
o H-Shares are listed on the Hong-Kong Exchange in HKD and are freely investable for foreign investors.
o The HSCEI index tracks the top 50 H-Shares stocks. Futures on the HSCEI are available and trade in high volumes on the Hong-Kong futures exchanges.
The US Market
o Some Chinese Tech Companies have chosen to be directly listed as ADRs in the US market.
The Hong-Kong Dollar is pegged to the US Dollar. Most companies report in CNY (even if the stocks is traded in HKD or USD). The CNY rate is
floating around a central parity determined by the People’s Banks of China with respect to a basket of world currencies.
February 3, 2021 5Types of Equity Shares
The China mainland equity market is comprised of A, B, H, Red chip and P chip shares.
A shares are incorporated in China and traded in Shanghai and Shenzhen.
o Quoted in local renminbi
o Entail foreign investment restrictions. However, professional foreign investors with a special license are able to invest in these stocks under certain restrictions.
B shares are incorporated in China and traded in Shanghai and Shenzhen.
o Quoted in foreign currencies
o Open to foreign investors
H shares are incorporated in China and traded in Hong Kong and other foreign exchanges.
o Quoted in HKD
o This is the historical preferred market by foreign investors and is relatively liquid.
Red chips are incorporated outside of China and traded in Hong Kong. Usually controlled by the state, a province or municipality.
o Quoted in HKD
o Open to foreign investors
P chips are incorporated outside of China and traded in Hong Kong. Usually non state-owned companies.
o Quoted in HKD
o Open to foreign investors
February 3, 2021 6Sectors weights and P/E ratios
Weights P/E Ratio
MSCI Shanghai Shenzhen MSCI Shanghai Shenzhen
HSCEI HSI HSTECH HSCEI HSI HSTECH
China Composite Composite China Composite Composite
MSCI China, HSCEI, HSI and
Consumer Discretionary 36.0 20.3 16.5 32.3 7.7 11.2 150.0 168.3 134.1 63.6 81.7 82.8
Retailing 25.7 13.5 10.6 31.3 2.1 0.7 30.8 47.2 41.6 47.1 29.8 25.1 HSTECH are tilted toward
Automobiles 5.2 2.4 1.6 3.5 3.1 44.1 24.1 24.1 17.0 20.9
Apparel 2.0 3.5 2.4 0.4 1.8 6.3 32.2 34.1 34.1 16.5 21.7 20.0 Retailing (Alibaba, JD.com) and in
Consumer Services 3.2 0.9 1.9 0.6 0.3 1.1 42.9 62.9 34.4 13.2 16.7
Communication Services 20.7 15.8 13.1 13.2 1.4 2.9 54.1 43.1 43.2 32.2 36.6 52.7 Medias (Tencent, Baidu).
Media & Entertainment 20.5 11.0 10.3 13.2 1.0 2.9 33.8 35.0 35.8 32.2 18.3 22.7
Telecommunication 0.2 4.8 2.8 0.3 0.1 20.3 8.1 7.4 18.3 30.0 HSCEI and HSI have a bigger
Financials 12.9 31.4 41.9 1.8 26.0 5.5 25.1 14.5 68.1 91.8 24.5 37.4
Banks 9.0 21.1 25.8 0.1 20.8 5.4 8.2 5.3 27.0 30.3 8.4 18.7
weight on financials (large banks
Insurance 4.0 10.4 16.1 1.7 5.2 0.1 8.7 9.3 14.2 61.5 7.7
& insurers).
Information Technology 6.0 7.9 5.0 45.1 10.0 20.1 191.9 116.5 33.0 210.3 123.6 110.1
Hardware & Equipment 3.8 6.4 5.0 24.0 3.6 13.7 24.9 34.5 33.0 23.8 20.2 27.5
Shanghai and Shenzhen
Software & Services 1.4 11.3 2.3 3.7 125.8 130.4 52.1 36.0
Semiconductors 0.8 1.5 9.8 4.1 2.8 41.2 82.0 56.1 51.3 46.6 Composites are tilted toward
Health Care 6.9 4.3 4.7 7.7 7.0 13.4 120.1 438.4 56.2 413.0 76.7 74.4
Health Care Equipment 1.6 1.4 7.7 1.3 5.3 40.6 411.7 413.0 29.7 35.0 smaller companies, exporters and
Pharma & Biotech 5.2 2.8 4.7 5.7 8.1 79.5 26.7 56.2 47.0 39.4
domestic stocks, in Industrials,
Industrials 4.3 1.4 3.8 15.2 17.9 44.9 4.8 35.8 43.3 78.2
Consumer Staples 4.2 5.0 2.3 12.7 12.6 69.3 41.5 30.2 108.4 73.1
Staples and Materials.
Materials 2.1 0.8 9.7 11.9 10.8 6.2 15.6 20.2
Real Estate 3.5 6.2 7.1 2.6 2.5 5.2 5.0 8.1 5.4 5.4
Utilities 1.8 3.2 3.1 3.1 1.2 10.6 14.9 17.2 11.8 8.7
Energy 1.6 3.7 2.5 4.6 0.7 8.2 8.8 8.8 9.3 13.0
February 3, 2021 7Financial Ratios
Chinese indexes have quite wide different financial metrics.
The HSTECH index has higher price-related ratios (P/E, P/B,.), but smaller dividend yield.
HSCEI, HSCI and HSTECH indexes are concentrated in a few companies. Shanghai and Shenzhen indexes are much more diversified.
Shanghai and Shenzhen indexes have more indebted components with a much smaller market cap.
MSCI Shanghai Shenzhen
HSCEI HSI HSTECH
China Composite Composite
Dividend Yield 1.5 3.0 2.8 0.5 2.9 1.2
P/E 17.6 10.7 13.3 42.0 11.8 23.2
P/B 2.3 1.2 1.3 5.1 1.2 3.5
P/S 1.9 1.4 1.9 2.1 0.9 2.2
EV/EBITDA 15.5 12.5 13.2 25.4 16.9 23.7
Debt/Assets 21.3 16.2 14.9 12.8 23.8 30.9
Market Cap Median $Bn 10.4 42.4 32.6 13.3 1.0 0.7
Number of constituents 592 51 52 31 1542 2396
February 3, 2021 8MSCI China Index – Top 20 holdings
Name Sector P/E Weight
Tencent Communication Services 43.5 15.1
Alibaba Consumer Discretionary 23.9 14.5
Meituan Consumer Discretionary 208.2 5.2
JD.com Consumer Discretionary 47.9 2.4
Nio Consumer Discretionary 0.0 2.4
China Construction Bank Financials 5.4 2.2
The MSCI China Index is concentrated on
Ping An Insurance Financials 11.9 2.2
Baidu Communication Services 25.9 2.0 Tencent and Alibaba (30%). Main sectors are
Pinduoduo Consumer Discretionary 0.0 1.9 Financials, Communication and Discretionary :
Xiaomi Information Technology 39.0 1.6
Netease Communication Services 36.1 1.4
Top 10 represents 49.7%
Wuxi Biologics Health Care 273.1 1.4 Top 20 represents 59.8%
Industrial & Commercial Bank of China Financials 5.2 2.0
Tal Education Consumer Discretionary 118.8 0.9
Bank of China Financials 4.2 0.8
New Oriental Consumer Discretionary 44.1 0.8
Geely Automobiles Consumer Discretionary 40.1 0.7
Kweichow Moutai Consumer Staples 52.0 0.7
Yum China Consumer Discretionary 29.8 0.7
BYD Co Consumer Discretionary 409.5 0.6
February 3, 2021 9HSCEI Index – Top 20 holdings
Name Sector P/E Weight
Tencent Communication Services 43.5 11.1
China Construction Bank Financials 5.4 8.3
Ping An Insurance Financials 11.9 7.3
Meituan Consumer Discretionary 208.2 5.4
Industrial & Commercial Bank of China Financials 5.2 4.7
Alibaba Consumer Discretionary 24.3 4.5
Xiaomi Information Technology 39.0 4.4 The HSCEI Index is concentrated on a few
China Mobile Communication Services 7.6 3.6
names, mainly in the Financials,
China Merchants Bank Financials 12.7 2.9
Bank of China Financials 4.2 2.7
Communication and Discretionary sectors:
Geely Automobiles Consumer Discretionary 40.1 2.5 Top 10 represents 55%
JD Health Consumer Discretionary 570.7 2.3
Top 20 represents 74%
Sunny Optical Tech Information Technology 43.9 2.0
Anta Sports Products Consumer Discretionary 45.7 1.8
CNOOC Ltd Energy 7.1 1.7
Shenzhou International Consumer Discretionary 35.7 1.7
China Mengniu Dairy Consumer Staples 34.2 1.6
Semiconductor manufacturing Information Technology 104.6 1.6
China Life Insurance Financials 7.9 1.6
JD.com Consumer Discretionary 51.2 1.5
February 3, 2021 10HSI Index – Top 20 holdings
Name Sector P/E Weight
Tencent Communication Services 43.5 11.1
AIA Group Financials 23.2 9.9
HSBC Financials 12.6 7.4
Meituan Consumer Discretionary 208.2 6.3
Hong Kong Exchanges Financials 50.7 5.6
China Construction Bank Financials 5.4 5.6
Ping An Insurance Financials 11.9 5.0
The HSI Index is concentrated on a few
Alibaba Consumer Discretionary 24.3 4.5 names, mainly in the Financials and
Xiaomi Information Technology 39.0 3.4 Discretionary sectors:
Industrial & Commercial Bank of China Financials 5.2 3.2
Wuxi Biologics Health Care 273.1 3.1 Top 10 represents 62.1%
China Mobile Communication Services 7.6 2.5 Top 20 represents 79%
Bank of China Financials 4.2 1.8
Geely Automobiles Consumer Discretionary 40.1 1.7
Techtronic Industries Industrials 39.4 1.6
Sunny Optical Tech Information Technology 43.9 1.3
CK Hutchison Industrials 6.1 1.3
Anta Sports Products Consumer Discretionary 45.7 1.2
CLP Holdings Utilities 16.0 1.2
Link Reit Real Estate 0.0 1.2
February 3, 2021 11HSTECH Index – Top 20 holdings
Name Sector P/E Weight
Meituan Consumer Discretionary 208.2 8.8
Sunny Optical Tech Information Technology 43.9 8.4
Tencent Communication Services 43.5 7.8
JD Health Consumer Discretionary 570.7 7.8
Alibaba Consumer Discretionary 24.3 7.5
Xiaomi Information Technology 39.0 6.6
Semiconductor manufacturing Information Technology 104.6 6.4
JD.com Consumer Discretionary 51.2 6.1 HSTECH index has few components and is
Alibaba Health Health Care 685.2 6.1
concentrated in the Tech and Discretionary sectors:
Kingdee International Information Technology 2397.8 4.1
Lenovo Information Technology 18.2 3.6 Top 10 represents 69.4%
Kingsoft Information Technology 46.1 3.0 Top 20 represents 92.8%
Netease Communication Services 0.0 3.0
BYD Electronic Information Technology 31.3 2.4
Weimob Information Technology 148.2 2.4
ASM Pacific Technology Information Technology 31.1 2.1
Ming Yuan Cloud Information Technology 249.4 1.9
AAC Technologies Information Technology 20.4 1.8
Zhongan Online Insurance Financials 101.0 1.7
Ping Healthcare Health Care 0.0 1.6
February 3, 2021 12Shanghai & Shenzhen Indexes – Top 10 holdings
Shanghai Composite
Name Sector P/E Weight
Kweichow Moutai Consumer Staples 52.0 6.2
ICBC Financials 6.2 3.1
China Merchants Bank Financials 8.1 2.4
Agricultural Bank of China Financials 5.7 2.3
Ping Insurance Financials 12.3 2.1
China Life Insurance Financials 20.3 1.8
Foshan Haitian Flavouring Consumer Staples 92.4 1.5
Petrochina Energy 14.3 1.5
Bank of China Financials 5.9 1.5 Shanghai and Shenzhen indexes are well diversified in
China Tourism Duty Free Consumer Discretionary 55.0 1.4 terms of components and sectors:
Shanghai’s Top 10 represents 23.7%
Shenghen Composite
Name Sector P/E Weight Shenzhen’s Top 10 represents 18.3%
Wuliangye Yibin Consumer Staples 52.1 3.4
Contemporary Amperex TechIndustrials 115.8 2.6
Yihai Kerry Arawana Consumer Staples 127.3 2.1
Midea Consumer Discretionary 24.6 2.0
Hangzhou Hikvision Digital Information Technology 40.9 1.7
Shenzhen Mindray Bio-Medical
Health Care 78.6 1.6
BYD Co Consumer Discretionary 231.6 1.3
SF Holding Industrials 63.8 1.3
Ping An Bank Financials 14.0 1.2
Luxshare Precision Industry Information Technology 39.2 1.1
February 3, 2021 13Chinese Equities ETFs
Here is a selection of the main ETFs (approved for distribution in Switzerland).
Fund Assets
Name Ticker Index Currency TER
(M USD)
iShares MSCI China A UCITS ETF CNYA LN MSCI China A USD 0.40% 2,208
Xtrackers Harvest CSI300 UCITS ASHR LN CSI 300 USD 0.65% 773
iShares China Large Cap UCITS IDFX LN FTSE China 50 USD 0.74% 693
iShares MSCI China UCITS ETF ICHD NA MSCI China USD 0.40% 315
Xtrackers FTSE China 50 UCITS XX2D LN FTSE China 50 USD 0.60% 139
Amundi Msci China UCITS ETF CC1U LN MSCI China USD 0.55% 82
February 3, 2021 14Contacts
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