Family trusts can provide several benefits for business purposes, tax optimization, or estate planning....by Jonathan Anthony
Tracking the Chinese Stock Markets
China and its stock markets often make the financial news headlines. From blistering performance at the start of 2015, to vertiginous corrections in the latter months, the Chinese markets have given more than one investor cause to down a few antacid pills. Actively tracking the Chinese stock markets, from the mainland China Indexes to their ETF counterparts, can help you get a better grip on their workings and lead to a positive investment experience.
From the start of 2015 till mid June 2015, the mainland China CSI 300 Index, composed of the 300 largest stocks on the Shanghai and Shenzhen exchanges, increased 50%. Going back 12 months to June 2014 through mid June 2015, the performance of the CSI 300 was even better, topping out at an over 125% increase. A broader mainland index, the SSE Composite Index, composed of all stocks that trade on the Shanghai exchange, increased over 150% in the same 12 months through mid June 2015.
The main Hong Kong index, the Hang Seng Index, was more subdued. This index of the 48 largest companies on the Hong Kong exchange, only increased 20% over the first 5 months of 2015. The Taiwan Capitalization Weighted Stock Index (TAIEX) increased a miserly 5% over those same first 5 months of 2015.
The powerful advance of the mainland indexes has been fuelled mainly by individual investors. By some counts, over 80% of the transactions in Chinese stocks are produced by these retail investors. And over the last 2 years, the percentage of young investors has skyrocketed. In the last 12 months, more than half of the new investment accounts that were opened in China were opened by someone under 30 years old. It’s no wonder then that the market volatility has also subsequently increased.
Chinese regulators have recently stepped in to try to manage the volatility. Limiting margin investing (i.e. borrowing cash to invest in the markets) has been one of their main tools. Until recently however, young investors were able to get around some of these limitations by using social media and peer-to-peer lending to borrow more investment funds instead.
July 2015 has seen a number of gut-wrenching drops in the mainland indexes. On July 27, 2015 alone, the CSI 300 Index dropped over 8%, its largest one-day drop in years. Other sell-offs happened throughout the month of July, with follow up bounces and subsequent further drops.
On June 24th, 2015, the CSI 300 entered bear market territory (a drop of 20% or more) from the peak earlier that month.
Whether the Chinese mainland markets can recover their high-flying ways, or crash and burn al-la 1929 New York style, or even whether the Chinese regulators manage to bring serenity to the markets, is anyone’s guess.
Tracking the Chinese Stock Market Indexes
Whether you’re a Chinese market bull or bear, to make intelligent, informed decisions on what to invest in, you’ll first need to start tracking the ups and downs of the Chinese stock markets.
- CSI 300 Index – As a starting point, you’ll want to track the mainland China CSI 300 Index. This index is composed of the 300 largest “A”-stocks that trade on the Shanghai and Shenzen exchanges. It is the most commonly referred to Chinese index. At Yahoo Finance, the ticker symbol is 000300.SS. At Google Finance, the ticker symbol is SHA:000300.
- SSE Composite Index – It’s also useful to track the broader mainland China index, the SSE Composite Index. This index is composed of all stocks (both “A”-stocks and “B”-stocks) that trade on the Shanghai exchange (about 870 stocks, currently). You can see it at Yahoo Finance as 000001.SS or at Google Finance as SHA:000001.
- SZSE Component Index – Additionally, there’s the SZSE Component Index, composed of 40 stocks that trade on the Shenzhen stock exchange. At Yahoo Finance its ticker symbol is 399001.SZ and at Google Finance its ticker symbol is SHE:399001.
- Hang Seng Index – Another useful index is the Hang Seng Index, Hong Kong’s main index of the 48 largest stocks that trade on their exchange (Yahoo: ^HSI; Google: INDEXHANGSENG:HSI).
- TAIEX – The Taiwan Capitalization Weighted Stock Index (abbreviated TAIEX) covers all listed stocks on the Taiwan Stock Exchange (TWSE) (Yahoo: TAIEX; Google: TPI:TAIEX).
Chinese Market ETFs
Once you’ve done a bit of homework and have a better feel for how and where this sort of investment could fit into your portfolio, you’ll need to take a look at some of the actual investment instruments that you can put your money into.
As a non-Chinese person, you won’t be able to invest directly in individual stocks. However, there are a number of ETFs that can expose you to various elements of the Chinese market.
- iShares China Large-Cap ETF (Yahoo: FXI; Google:NYSEARCA:FXI) – As the most heavily traded Chinese share ETF (20 million shares traded daily), it invests in the 25 largest Chinese stocks that trade on the Hong Kong exchange as it tries to replicate the FTSE China 25 Index.
- Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (Yahoo: ASHR; Google:NYSEARCA:ASHR) – This highly liquid ETF (over 3 million shares traded daily) aims to replicate the CSI 300 Index. This index tracks the 300 largest, most liquid stocks that trade on the Shanghai and Shenzhen exchanges. Comparing its chart to that of the CSI 300 Index shows that they trade very closely to one another.
- Market Vectors ChinaAMC SME-ChiNext ETF (Yahoo: CNXT; Google:NYSEARCA:CNXT) – Less widely traded (200K shares traded daily) this ETF looks to replicate SME-ChiNext 100 Index. This index is composed of 100 small and medium sized stocks that trade on the SME (Small and Medium Enterprise) Board and the ChiNext (fast-growing and technology heavy stocks) Board of the Shenzhen Stock Exchange.
- iShares MSCI China ETF (Yahoo: MCHI; Google:NYSEARCA:MCHI) – Another liquid ETF (over 1 million shares traded daily) with over $2 billion in assets, it aims to replicate the MSCI China Index, which tracks the performance of large cap Chinese equities.
- SPDR S&P China ETF (Yahoo: GXC; Google:NYSEARCA:GXC) – Less widely traded (200K shares traded daily), but with a low expense ratio and over $1 billion in assets, this ETF tracks the S&P China BMI Index. The S&P China BMI Index encompasses the stocks of all publicly traded companies, domiciled in China, but whose shares are available to trade by foreign investors.
Short Term Investing with Chinese Market ETFs
If you’re more of a short term trader (swing-trader or day trader), there are a number of ways to play the Chinese market volatility using leveraged and inverse ETFs.
- ProShares Ultra FTSE China 50 (Yahoo: XPP; Google:NYSEARCA:XPP) – A leveraged ETF that aims to provide returns that are twice (2x) the daily performance of the FTSE China 50 Index. This index tracks the performance of the largest companies in the Chinese equity market that are available to international investors.
- ProShares Short FTSE China 50 (Yahoo: YXI; Google:NYSEARCA:YXI) – An inverse ETF that aims to provide returns that are the inverse (-1x) of the daily performance of the FTSE China 50 Index.
- ProShares Ultrashort FTSE China 50 (Yahoo: FXP; Google:NYSEARCA:FXP) – A leveraged inverse ETF that aims to provide returns that are the twice the inverse (-2x) of the daily performance of the FTSE China 50 Index.
- Direxion Daily FTSE China Bull 3X ETF (Yahoo: YINN; Google:NYSEARCA:YINN) – Aims to provide returns that are three times (3x) the daily performance of the FTSE China 50 Index.
- Direxion Daily FTSE China Bear 3X ETF (Yahoo: YANG; Google:NYSEARCA:YANG) – A leveraged, inverse ETF that aims to provide returns that are three times the inverse (-3x) of the daily performance of the FTSE China 50 Index.
- Direxion Daily CSI 300 China A Share Bull 2X Shares (Yahoo: CHAU; Google:NYSEARCA:CHAU) – A leveraged ETF that aims to provide returns that are twice (2x) the daily performance of the CSI 300 Index.
- Direxion Daily CSI 300 China A Shares Bear 1X Shares (Yahoo: CHAD; Google:NYSEARCA:CHAD) – An inverse ETF that aims to provide returns that are the inverse (-1x) of the daily performance of the CSI 300 Index.
Other Notable Chinese Stock ETFs
The ETFs mentioned above are certainly not the only ways to invest in the Chinese market. There are a number of smaller ETFs that provide a more targeted investment, or track various other Chinese Indexes.
- Guggenheim/Claymore/AlphaShares China Small Cap ETF (Yahoo: HAO; Google: NYSEARCA:HAO ) – An ETF that aims to provide returns equivalent to the performance of the equity index called the AlphaShares China Small Cap Index. This index tracks the performance of publicly-traded mainland China-based small capitalization companies who have a maximum $1.5 billion market capitalization.
- PowerShares Golden Dragon China ETF (Yahoo: PGJ; Google: NYSEARCA:PGJ ) – An ETF that aims to provide returns equivalent to the performance of the NASDAQ Golden Dragon China Index/Halter USX China Index. This index is comprised of the United States-listed securities of companies that derive a majority of their revenue from the People’s Republic of China.
- iShares MSCI China Small-Cap (Yahoo: ECNS; Google: NYSEARCA:ECNS ) – An ETF that aims to track the performance of the MSCI China Small Cap Index. This index is designed to measure the performance of equity securities in the bottom 14% by market capitalization of the Chinese equity securities markets.
The list of Indexes and ETFs above is certainly not an exhaustive list of the ways of investing in the Chinese market. The ETFdb.com website has an even longer list of ETFs that can help you find the right vehicle for your investment in the Chinese market.
Tracking Chinese Indexes and ETFs
To get yourself started tracking and doing follow up research on these indexes and ETFs, create a new Watchlist for them in StockMarketEye. Then download and import this CSV file that contains all of the ticker symbols for the Chinese Indexes and ETFs mentioned in this post. Or watch this video on how to import a CSV watchlist into StockMarketEye.
If you have other suggestions for indexes or ETFs that other investors would find useful, don’t hesitate to mention them in the comments.