The FTSE China A50 Index is the benchmark for those investors wishing to access the Chinese domestic market. It comprises the largest 50 A-share companies by full market capitalisation listed on the Shanghai and Shenzhen stock exchanges.
The majority of the index is taken up by firms in the financial sector. These businesses account for approximately 65 per cent of the total and banks take the lion’s share at nearly two-fifths (39 per cent). Major holdings include Ping An Insurance, China Merchants Bank, Shanghai Pudong Development Bank, Industrial Bank and China Minsheng Banking.
A-shares are one of two types of classes in shares that are offered by companies listed on Chinese exchanges. They are only quoted in the domestic Chinese currency, the yuan (CNY), and are usually only available to be purchased by citizens from the Chinese mainland. Foreign investment is occasionally allowed, however only through a highly controlled structure known as the Qualified Foreign Institutional Investor (QFII) system.
Investment in China’s A-shares used to be extremely restricted even for domestic investors. However, A-shares underwent a boom during the 2005-2007 period as regulations loosened enough to permit investment by Chinese citizens and these barriers continued to slowly peel away. In fact, at one point demand for A-shares was so high that this class of shares would trade for much larger premiums than which could be purchased on a different exchange.
The contract acts as a hedging, investment and an arbitrage tool for traders and investment professionals.