Shanghai Index - How to Invest in China ETFs?

May 07, 2021 15:10 UTC
Reading time: 13 minutes

For years, investors have been trying to capitalise on China’s economic boom. However, gaining access to the country's two stock exchanges, the Shanghai Stock Exchange and Shenzhen Stock Exchange is difficult for foreign investors. 

Fortunately, there are a variety of ways to gain exposure to China’s stock market indices such as the Shanghai index, also known as the Shanghai SSE index.

In this article, we go through what the Shanghai Composite index is and how it is constructed, as well as how investors can gain exposure to the growth in China’s main stock market index and much, much more! 

 

Shanghai Index

What is the Shanghai Index?

The Shanghai Composite index, also known as the Shanghai SSE index is a stock market index of all the stocks that are listed at the Shanghai Stock Exchange. The composite index lists both A shares and B shares - what’s the difference?

  • A-shares are publicly listed Chinese companies that trade on both the Shanghai Stock Exchange and the Shenzhen Stock Exchange - two of China’s main stock indexes. These shares are typically traded in Renminbi (Chinese Yuan). 
    • Only residents of the People’s Republic of China, investors under the Qualified Foreign Institutional Investor program or Stock Connect programs can trade these shares. 
  • B-shares represent publicly listed Chinese companies listed on both stock exchanges with the stocks listed on the Shanghai Stock Exchange priced in US dollars and the stocks listed on the Shenzhen Stock Exchange priced in Hong Kong dollars. 
    • These shares can be traded by non-residents of the People’s Republic of China who have the appropriate foreign currency dealing accounts.

 

The Shanghai index itself has different variations. For example, the Shanghai 50 index is an index of the top 50 companies (measure by float-adjusted capitalisation) listed on the stock exchange. 

There is also the Shanghai A Index, Shanghai 180 index and the Shanghai 300 index which is actually related to the CSI 300 index which is a capitalisation-weighted stock index tracking the performance of the top 300 companies listed on both the Shanghai and Shenzhen stock exchanges. 

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Top Companies in the Index

There are a variety of companies listed in the index. Some of the constituents include PetroChina, China Life Insurance and China Southern Airlines. You can actually invest in these companies through an Associated Depositary Receipt (ADR). 

An ADR is essentially a certificate that is issued by a US depositary bank. The certificate represents a fixed amount of shares of a foreign company. You can trade these certificates, or ADRs, on the US stock market just like any other stock. 

This provides investors with another way to gain exposure to the Chinese market. Through the Admirals MetaTrader 5 trading platform you can view the live share price and chart of these Shanghai stocks, just like you could view the Shanghai index on Google finance charts. 

Shanghai Index PetroChina

Source: Admirals MetaTrader 5, PTR, Monthly - Data range: from 1 Nov 2004 to 7 May 2021, accessed on 7 May 2021 at 12:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

The price chart above shows the long-term share price of PetroChina Co Ltd ADR, which is available to invest on from the Admirals Invest.MT5 account. This gives investors more of a targeted investment of companies listed in China but through US stock exchanges via ADRs. 

Some investors may prefer to focus on a broader security that gains exposure to the overall region. For example, on the Admirals Contract Specification page, you can search for information regarding any of the 3,000+ financial instruments available to trade on, such as any Chinese financial markets

This information would include what time indexes open, as well as other markets and any fees associated with trading that particular market. 

China Index ETFs

The screenshot below shows a search for China on the Admirals Contract specification page. The first few options are a variety of exchange traded funds (ETFs) from investment companies such as Fidelity, xTrackers, iShares, SPDR, etc. 

Shanghai Index China ETF Admirals

Source: Admirals Contract Specification, 7 May 2021

These ETFs essentially provide investors exposure to China’s stock market indices like the Shanghai and Shenzhen indexes but from just one investment. For example, the SPDR S&P China ETF aims to track the performance of publicly traded companies that are domiciled in China and that are available to foreign investors. 

It does this by tracking the performance of the S&P China BMI Index. Many fund management companies would track the performance of index like the latter as well as the likes of the Dow Jones Shanghai index, the FTSE China 50 index and others.

In the fund’s factsheet, this could include China A shares that are available via the Shanghai-Hong Kong Stock Connect program. The funds top 10 holdings are shown below:

Shanghai Index SPDR China ETF

Source: SSGA, 7 May 2021

Some of you may already be familiar with a few of the companies such as Tencent, Alibaba, Baidu or NIO. However, in the top 10 holdings, there are also two companies that are from the Shanghai SSE 50 index. This includes Ping An Insurance and the Industrial and Commercial Bank of China. 

This provides a unique way to gain exposure to the Shanghai and Shenzhen indexes, as well as the broader economic story of China. 

How to Invest in China ETFs

Through the Admirals investing platform, you can invest in a variety of ETFs that track the performance of the Chinese stock market indices such as the Shanghai and Shenzhen stock markets.

Follow these steps to get started! 

  1. Create an Invest.MT5 account. This can be a demo account or a live account with a minimum deposit of just €1. 
  2. From the online client portal area, click on Trade next to your account to open the web-based MetaTrader 5 trading platform.
  3. At the bottom of the Market window, type in the instrument you wish to trade on. You can then choose from the automated selection that appears. 
  4. Drag the symbol from the window onto the chart to view its live price. 
  5. Right-click and select Trading then New Order to open a trading ticket where you can set your volume (transaction size) and other inputs.

Shanghai Index China ETF MetaTrader 5 Web

Source: Admirals MetaTrader 5 Web, FCSS, Weekly - Data range: from 30 Jul 2017 to 7 May 2021, accessed on 7 May 2021 at 12:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

While most investors may have an idea of which markets they want to invest in, it can be difficult to know when the best time to invest is. Some would use fundamental analysis or technical analysis, or a combination of both to help with this decision. 

However, there are tools that can help with finding technical analysis price patterns such as the Admirals Premium Analytics investing tool. 

Admirals Premium Analytics Investing Tool

Once you have opened your investing account you can gain exclusive access to the Premium Analytics tool directly from the Trader’s Room (the online client portal area). From here, you can access the Technical Insight Lookup Indicator. 

This indicator automatically finds technical events for you on thousands of different instruments, providing you with actionable insights to work with. 

Shanghai Index Fidelity China Special Situations

Source: Premium Analytics, 7 May 2021

The above screenshot shows the indicator has found 18 different technical events taking place on the share price of the Fidelity China Special Situations ETF. You can view each one of these technical events and it also provides a clear picture explaining what is happening. 

This is not only a great tool for your investing arsenal but it also helps you learn more about technical analysis which is one of the most popular methods of trading the market. 

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Conclusion

China was one of the first economies to recover from the coronavirus pandemic causing many analysts to forecast strong economic growth for the foreseeable future. 

Accessing markets in China can be difficult for foreign investors. However, there are still ways to gain exposure to China’s stock market indices, such as the Shanghai index, through the use of ETFs. 

Did you know that you can open a FREE demo account and test all of the services and features provided by Admirals, as well as your own theories and ideas in a virtual environment?

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Jitanchandra Solanki
Jitanchandra Solanki
Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.