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Index IDEA: FTSE China indexes highlight diverse points of access to Chinese equities

As the world’s second largest economy, China is an important market for global investors. Yet, at the same time, China is an emerging market and reflects an evolving market structure which can mean different things to different investors. In particular, the diversity of access points to the China equity market available to global investors underscores the complex nature of China’s equity market.

FTSE Russell examined year-to-date China  market performance through the lens of its multiple share class structure, finding that FTSE Russell indexes tracking performance for A, B, H, Red Chip, P Chip and S Chip Shares have shown  widely varying returns in 2016 year-to-date as of September 26.
 

Alphabet Soup:
A Sampling of FTSE China Share Class Index Returns YTD

Source: FTSE Russell. Data as of September 26, 2016. Past performance is no guarantee of future results. Please see the disclaimer for important legal information.

Mat Lystra, Senior Index Research Director, FTSE Russell:

“Despite sharing a common country of origin, China’s share classes do not always move in lockstep.  The different share classes were developed over time as the Chinese markets grew, and their characteristics and performance have varied over time, in some instances dramatically. China’s evolution represents opportunity for investors but can also mean increased complexity,  and FTSE Russell’s experience creating China-based benchmarks can help make sense of the share class alphabet soup.“

China A and B Shares track companies that are incorporated within China and listed on Chinese exchanges. A Shares are available only to Chinese residents or non-residents who meet certain investment quotas and are denominated in Chinese currency, while B Shares are available to foreign investors and are denominated in Hong Kong or US currency.

This week, FTSE Russell announced results from its most recent FTSE annual country classification review, which included its perspective on the progress of China A Shares toward becoming a Secondary Emerging market within the FTSE Global Equity Index Series.

H Shares are shares of Chinese companies listed on the Hong Kong exchange and denominated in Hong Kong currency. So-called Red Chips are shares listed on the Hong Kong stock exchange and ownership can be tied back to a China mainland government entity. P-Chip and S-Chip Chinese companies are often privately owned, most often incorporated in a tax-advantaged country like the Cayman Islands or Bermuda, and are listed on the Hong Kong and Singapore exchanges, respectively.

Visit our website for a closer look at the FTSE China Index Series and China share classes.

 

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Views expressed by Mat Lystra of FTSE Russell are as of September 30th and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the London Stock Exchange Group.

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No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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