China on Indices – Investing in China

The spectacular economic rise of China has necessitated the inclusion of China into the MSCI index. This inclusion has evidenced Chinese capabilities in all similar parameter metrics. China is doing well on Indices. Investing in China will take hold, once the Post -Pandemic times truly arrive the world over. 

MSCI China Index

MSCI China indexes are structured on quality-reviewed, enriched datasets supported by 99.96% accuracy levels in index production. They are computed using a fully transparent and innovative maintenance methodology with a strong accent on increasing investability and replicability through

the use of stringent size and liquidity screens. The indexes have the objective of representing the performance of a range of opportunity sets of Chinese companies, listed inside and outside China, in different share classes. 

The MSCI China Index is constructed based on the integrated China equity universe included in the MSCI Emerging Markets Index. The latter provides a standardised definition of the China equity opportunity set. The index has the objective of representing the performance of large- and mid-cap segments with H shares, B shares, red chips, P chips and foreign listings (for instance, ADRs) of Chinese stocks.

China A-shares will be partially included in this index, making it the factual index for all of China. It can be used as a China benchmark for investors who use the MSCI ACWI Index or MSCI EM Index as their policy benchmark. The MSCI China A Index gauges large and mid-cap representation across China securities listed on the Shanghai and Shenzhen exchanges. The index covers only those securities that are accessible through “Stock Connect”. The index is designed for international investors and is computed using China A Stock Connect listings based on the offshore RMB exchange rate (CNH).

The MSCI China All Shares Index gauges large and mid-cap representation across China A-shares, B shares, H shares, Red chips, P chips and foreign listings (for example, ADRs). The index has the objective of representing the performance of the opportunity set of China share classes listed in Hong

Kong, Shanghai, Shenzhen and outside of China. It is founded upon the concept of the integrated MSCI China equity universe with China A-shares included.

Chinese companies

China Petroleum & Chemical Corp. (SNP)

· Revenue (TTM): $326.3 billion

Net Income (TTM): $5.6 billion

· Market cap: $61.1 billion

· 1-Year Trailing Total Return: -11.9%

· Exchange: New York Stock Exchange

A producer and distributor of a variety of petrochemical and petroleum products, China Petroleum & Chemical’s products include gasoline, diesel, kerosene, synthetic rubbers and resins, jet fuel, and chemical fertilisers, besides related offerings. Also known as Sinopec, China Petroleum & Chemical is among the largest oil refining, gas, and petrochemical companies internationally. It is administered by the State Council of the People’s Republic of China.

 PetroChina Co. Ltd.

· Revenue (TTM): $303.7 billion

· Net Income (TTM): $2.7 billion

· Market Cap: $61.3 billion

· 1-Year Trailing Total Return: -32.4%

· Exchange: New York Stock Exchange

Oil and gas company PetroChina is involved in oil exploration, development, production, and sales. It also manufactures petrochemical products. PetroChina is the exchange-listed branch of the Chinese state-owned China National Petroleum Corporation.   

Ping An Insurance (Group) Co. of China Ltd.

· Revenue (TTM): $155.1 billion

· Net Income (TTM): $17.5 billion

· Market Cap: $238.8 billion

· 1-Year Trailing Total Return: 9.8%

· Exchange: OTC

Ping An Insurance is an international financial services company that offers property, casualty, and life insurance products, in addition to banking, trust services, and investment management. The company divides its operation across five “ecosystems”, corresponding sectors being financial services, health care, auto services, real estate services, and Smart City. The latter aims to improve government agency efficiency and sustainability.

China Railway Group Ltd.

· Revenue (TTM): $137.6 billion

· Net Income (TTM): $3.8 billion

· Market Cap: $12.3 billion

· 1-Year Trailing Total Return: -26.9%

· Exchange: OTC

China Railway Group’s main business is the construction of transportation infrastructure. Specifically, it builds railways. However, it also builds roads, bridges, and tunnels. Furthermore, China Railway Group is concerned with real estate development, engineering surveys, equipment manufacturing, and other ancillary businesses. The Chinese Government is a major shareholder.

Industrial & Commercial Bank of China

· Revenue (TTM): $124.5 billion

· Net Income (TTM): $41.3 billion

· Market Cap: $231.5 billion

· 1-Year Trailing Total Return: -9.5%

· Exchange: OTC

Industrial and Commercial Bank Of China is the largest bank globally in terms of total assets under

management. The bank provides services to companies, individuals and other clients. They

include credit cards and loans, financing for businesses, and money management services for companies and high net worth individuals. In spite of this being a commercial bank, it remains state-owned.

China Life Insurance Co. Ltd.

· Revenue (TTM): $111.1 billion

· Net Income (TTM): $7.2 billion

· Market Cap: $65.1 billion

· 1-Year Trailing Total Return: -16.5%

· Exchange: New York Stock Exchange

China Life Insurance offers a range of group health, life, and accident insurance products. It also sells annuity products to individuals and groups. Unsurprisingly, it is majority state-owned.

China Construction Bank Corp.

· Revenue (TTM): $105.2 billion

· Net Income (TTM): $35.3 billion

· Market Cap: $196.6 billion

· 1-Year Trailing Total Return: -3.7%

· Exchange: OTC

China Construction Bank is the second-largest bank globally, following the Industrial And Commercial Bank of China above. Serving individuals, businesses, and other clients, the state-owned China Construction Bank provides banking services, including loans and deposits, fund management, and foreign exchange.

CITIC Ltd.

· Revenue (TTM): $91.7 billion

· Net Income (TTM): $6.1 billion

· Market Cap: $22.1 billion

· 1-Year Trailing Total Return: -40.5%

· Exchange: OTC

the erstwhile China International Trust Investment Corporation, CITIC, is an investment and financial services company owned by the Chinese Government. CITIC’s products. Services include asset management, banking, insurance, securities.

Alibaba Group Holding Ltd.

· Revenue (TTM): $83.4 billion

· Net Income (TTM): $18.7 billion

· Market Cap: $641.1 billion

· 1-Year Trailing Total Return: 0.8%

· Exchange: New York Stock Exchange

Through subsidiaries, Alibaba Group Holding is a holding company that provides e-commerce, online financial, and other internet content services. Alibaba also offers internet infrastructure services.

Bank of China Ltd.

· Revenue (TTM): $80.1 billion

· Net Income (TTM): $24.8 billion

· Market Cap: $97.2 billion

· 1-Year Trailing Total Return: -15.5%

· Exchange: OTC

Bank of China is a financial institution providing banking services. Bank of China offers loans, deposits, foreign currency transactions, fund settlement services, and ancillary banking products and services. It is the fourth largest bank in the world by total asset terms.

Fidelity China Special Situations

Fidelity China Special Situations has an enviable performance track record. Its NAV total return has

outpaced its benchmark over most periods, with the exception of three years. FCSS’s focus on

investing with a long-term horizon and a tilt favouring small- and mid-cap companies implies the trust’s returns diverging meaningfully from the index. FCSS has significantly outperformed the MSCI China Small Cap Index over all periods.

FCSS is currently trading at a 9.3% discount to its cum-income NAV.

Hong Kong Stock Exchange

What is the Hong Kong Stock Exchange (HKG).HK?

The Hong Kong Stock Exchange (HKG).HK is a member of HKEX Group – the leading venue for capital raising activity for Hong Kong and Mainland Chinese issuers. Among the world’s largest securities markets by market capitalisation, the Hong Kong Stock Exchange originated with the founding of China’s first formal securities market, the Association of Stockbrokers in Hong Kong( 1891). A second market opened in 1921, and in 1947 the two merged to form the Hong Kong Stock Exchange. The exchange introduced automated ordering in 1993 and stock option trading in 1995. It merged with the Hong Kong Futures Exchange and the Hong Kong Securities Clearing Company in 2000, thus forming Hong Kong Exchanges and Clearing Ltd.

 Breaking down the Hong Kong Stock Exchange (HKG).HK

The Hong Kong Stock Exchange (HKG) .HK is among the largest markets in Asia with over 2,500 listed companies. As of November 2020, The aggregate market capitalisation of companies listed on the exchange was around HK$45.5 trillion. The growth has been fueled by listings by Mainland Chinese companies (H-Shares on the Hong Kong Stock Exchange) , their rapid development going hand-in-hand with the aspiration to make China the world’s largest economy. The minimum market capitalisation for a listing is currently HK$500 million, a minimum value of public float being HK$125 million. The exchange raised these minimum amounts in 2017 to strengthen trading liquidity for market participants, thereby enhancing the quality of the exchange’s listed issuers

Quite a few of the top listed companies by market capitalisation are banks and insurance companies from Mainland China, such as the Industrial and Commercial Bank of China, China Construction Bank, Bank of China, and Ping An Insurance. Nevertheless, as of Nov. 2020, Tencent Holdings, the Chinese internet conglomerate, stands far above the crowd at the No. 1 position.

Conclusion

Investing in China is a growing obsession with investors not only globally but locally in China as well. More and more Indices will be coming forward to bask in China’s resilience. In the meantime, investors, both local and global, can rest assured Chinese equities will perform so that that track record can be reflected on Indices. Post-Pandemic, in conjunction with the worldwide trend in ascending infrastructure stocks, investing in China will become common sense. 

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