A Deep Dive into the SGX FTSE China A50 Index Futures

26 Apr 2024

By Danish Lim, Investment Analyst for Phillip Nova

The FTSE China A50 Index (+6.06% YTD) has outperformed both the broader CSI 300 (+2.23%) and the Hang Seng Index (-0.77%) as of 24 April.

It is a free float market cap-weighted index that tracks the 50 largest A-Share securities, adjusted for foreign ownership limits. A-shares are securities of companies incorporated in mainland China that trade on the Shanghai or Shenzhen stock exchanges. The top 3 largest holdings include domestic players such as “national liquor” Kweichow Moutai, EV battery giant CATL, and China Merchants bank.

Most A-share companies generate the bulk of their revenue domestically, making the index relatively less sensitive to ongoing geopolitical/trade tensions and global macroeconomic trends.

Historically, Chinese fiscal and monetary policy have been out of sync with their western counterparts. While the US and EU have been tightening monetary policy to curb inflationary pressures since 2022, China has been on an easing path in order to stimulate its economy and fuel domestic demand.

This divergence in monetary and fiscal policies has resulted in a low correlation between the FTSE China A50 Index and other markets, as seen below. This provides valuable diversification benefits for investors.

Source: Bloomberg Linear Regression, 24 April, Correlation of 0.279 with S&P 500

China’s economic transition from export-driven “high-speed growth” to a consumption-driven “high-quality growth” presents exciting investment opportunities.

When examining the Index’s sector weightage, as seen below, we observe that the Financial & Real Estate industry were by far the largest industries in 2008, with its weight exceeding 50%.

In recent years, the industry distribution has become more diversified. At the end of 2022, we see that the Discretionary, Staples, and Health industry had replaced Financials & Real Estate as the largest industry in the A50 Index.

This shift can be attributed to China’s ongoing transition towards a consumption-driven economy; as well as a growing middle-income population which may have helped spur consumer spending. The middle class group is expected to reach 400 million by 2030, driving consumer spending to around US$6.4 trillion annually.

The Healthcare and Renewable Energy industries are also seeing increased weightage:

A gradually aging population and increased healthcare spending is supporting the growth of biotech and pharmaceuticals in China.
A focus on “decarbonisation” and a push to become carbon neutral has supported renewable energy, electric vehicles, and EV batteries.

We think the changes in the A50 Index weightage is parallel to China’s ongoing economic reforms – reflecting a greater focus towards industries such as consumption, healthcare and decarbonisation.

Launched in 2006, the SGX FTSE China A50 Index Futures is based on the underlying FTSE China A50 Index. It provides an efficient and liquid way for investors to gain exposure to China’s A-shares market. The contract has seen deep institutional and retail trading, with daily traded value of US$5bn and open interest of US$11bn as of 29 March 2024.

A key feature of the contract is its extended trading session – as it is available for trading even during onshore Mainland and Hong Kong holidays.

In summary, China’s onshore equity market offers excellent diversification benefits due to its low correlation to global peers. In contrast to offshore markets, onshore A-shares are less subject to regulatory interventions. The FTSE China A50 Index can be viewed as a value-oriented, lower-beta play on Chinese equity markets.

Flash Deal of the Month – Trade the SGX FTSE China A50 Index Futures at Only 50 cents*

Click here to learn more about our SGX FTSE China A50 Index Futures Promotion.

Trade Stocks, ETFs, Forex & Futures on Phillip Nova

Features of trading on Phillip Nova

Gain Access to Over 20 Global Exchanges
Capture opportunities from over 200 global futures from over 20 global exchanges

Trade Opportunities in Global Stocks
Over 11,000 Stocks and ETFs across Singapore, China, Hong Kong, Malaysia and US markets.

Over 90 Technical Indicators
View live charts and trade with ease with over 90 technical indicators available in the Phillip Nova platform

Trade Multiple Assets on Phillip Nova
You can trade Stocks, ETFs, Forex and Futures on a single ledger with Phillip Nova

Free Phillip Nova Demo Account

Fast and Secure Online Account Opening

An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12^th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

Trade in both the bull and the bear markets
The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
Smaller barrier to entry
Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
No expiration date or risk of delivery
Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

More Market Trends

07 May 2024

Weekly report courtesy of Eurex Following the previous week’s focus on the US Federal Reserve’s interest rate policy, the markets are now turning their

Client Portal