China A shares 101

Here's all you need to know about China A shares

by China Equities team 15 Oct 2019

China A-shares are RMB-denominated equity shares of China-based companies that trade on the Shanghai and Shenzhen Stock Exchanges.

China A-shares trade on the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE).

Questions on China A shares answered

Yes. Foreign investors may invest in A-shares via Stock Connect, Qualified Foreign Institutional Investor (QFII), or RMB Qualified Foreign Institutional Investor (RQFII) programs.

In August 2019, the five most popular China A-shares with foreign investors, measured by total northbound buy volume on Stock Connect were:

  1. Kweichou Moutai, a Chinese baijiu/white liquor producer, RMB 15.2bn of buy volume;
  2. Wuliangye Yibin, a Chinese baijiu/white liquor producer, RMB 12.1bn of buy volume;
  3. Ping An Insurance, a China-based insurance company, RMB 9.6bn of buy volume;
  4. Ping An Bank, a China-based commercial bank and a subsidiary of Ping An Insurance, RMB 9.3bn of buy volume;
  5. Midea Group, China-based consumer appliance manufacturer, RMB 5.7bn of buy volume

As of the end of June 2019, foreign investors owned RMB 1.65trn (USD 230bn) worth of China A-shares, according to data compiled by the People's Bank of China.

Foreign investors owned an estimated 7.3% of the total A-share free float market cap on China's domestic equity market, according to UBS estimates.

Source: UBS, September 2019

China A-shares are only quoted in RMB. China B-shares are traded in USD on the Shanghai Stock Exchange and in HKD on the Shenzhen Stock Exchange.

China A-shares are RMB-denominated equity shares of China-based companies and trade on either the Shanghai Stock Exchange (SSE) or Shenzhen Stock Exchange (SZSE). H-shares are HKD-denominated equity shares of mainland China companies listed on the Hong Kong Stock Exchange.

Shanghai and Shenzhen Stock Exchanges have higher participation from retail investors. The Hong Kong Stock Exchange has higher participation from institutional investors.

Comparison of investor bases

Shanghai, Shenzhen & Hong Kong Stock Exchanges (% of Market), 2018

USD 4.8 trillion at the end of July 2019, according to data from the World Federation of Exchanges.

USD 3.0 trillion at the end of July 2019, according to data from the World Federation of Exchanges.

10. Bombay Stock Exchange (Market cap: USD 2.0 trillion);
9. Toronto (Market cap: USD 2.3 trillion);
8. Shenzhen (Market cap: USD 3.0 trillion);
7. LSE (Market cap: USD 3.8 trillion);
6. Hong Kong (Market cap: USD 4.1 trillion);
5. Euronext (Market cap: USD 4.3 trillion);
4. Shanghai (Market cap: USD 4.8 trillion)
3. Tokyo (USD 5.6 trillion)
2. Nasdaq: (USD 11.9 trillion)
1. NYSE: (USD 24.4 trillion)

Data comes from World Federation of Exchanges website and is correct as of end-July 2019.

The World's Ten Largest Stock Exchanges

by Market Cap (USD Trillions), July 2019)

  1. Shenzhen Stock Exchange has more listed companies (2,179) than the Shanghai Stock Exchange (1,518);
  2. Shenzhen Stock Exchange has a market cap of USD 3.0 trillion at the end of July 2019, smaller than the USD 4.8 trillion market cap of the Shanghai Stock Exchange;
  3. Shenzhen Stock Exchange has more private companies in the market than Shanghai Stock Exchange, which is dominated by larger, state-owned companies;
  4. Almost half of the Shenzhen stock market consists of China’s new economy sectors including, information technology, consumer discretionary and healthcare. In the Shanghai stock market, these three sectors only make up less than 20% of the market cap.

Shares of SOEs and non-SOEs in terms of market cap

Source: WIND, UBS IB, 20 April 2016

China A-share markets are dominated by retail investors. Retail investors tend to have shorter investment time horizons than institutional investors and trade in and out of positions much more frequently. As such, China's A-share markets can be volatile.

Stock Connect is an equity trading link that connects the Hong Kong Stock Exchange and the Shanghai and Shenzhen Stock Exchanges. Via Stock Connect, Hong Kong-based investors may trade in Shanghai and Shenzhen markets, and vice versa.

Shanghai-Hong Kong Stock Connect began on November 17th 2014 and provides mutual stock market access to investors in Hong Kong and Shanghai. In July 2019, Shanghai-Hong Kong Stock Connect saw HKD 22.4bn of average daily trading.

Shenzhen-Hong Kong Stock Connect links the Shenzhen and Hong Kong Stock Exchanges and allows mutual market access to investors in each market. Shenzhen-Hong Kong Stock Connect launched on December 5th 2016 and handled HKD 21.4bn in average daily trading in July 2019.

Northbound Stock Connect trading refers to equity trading by Hong Kong-based investors in the Shanghai and Shenzhen Stock Exchanges via the Hong Kong-Shanghai/Shenzhen Stock Connect. Total northbound trading turnover in August 2019 was RMB 869.1bn, with RMB 441.4bn on Hong Kong-Shanghai Stock Connect, and RMB 427.7bn on Hong Kong-Shenzhen Stock Connect, according to data from Hong Kong Exchanges and Clearing.

Southbound Stock Connect trading refers to equity trading by Shanghai and Shenzhen-based investors on Hong Kong Stock Exchanges via the Hong Kong-Shanghai/Shenzhen Stock Connect. Total southbound trading turnover in August 2019 was HKD 224.2bn, with HKD 143.1bn of southbound trading on Hong Kong-Shanghai Stock Connect, and HKD 81.1bn of northbound trading on Hong Kong-Shenzhen Stock Connect, according to data from Hong Kong Exchanges and Clearing.

Northbound Stock connect trading has been historically larger than southbound stock connect trading, mainly because southbound trading is more restricted than northbound.

Stock connect

Northbound & Southbound Average Daily Trading

Source: HKEx, September 2019

In August 2019, the five most popular H-shares with mainland China investors, measured by total buy volume on Southbound Stock Connect were:

  1. China Construction Bank, a state-owned Chinese bank, HKD 13.7bn of buy volume
  2. Tencent, a Chinese tech company, HKD 12.2bn of buy volume
  3. Ping An, a China-based insurance company listed in Hong Kong, HKD 5.1bn of buy volume
  4. ICBC, a state-owned Chinese bank, HKD 4.6bn of buy volume
  5. Sunny Optical, optical product designer and manufacturer, HKD 4.4bn of buy volume

Yes, and their share in MSCI indices will increase in the future. MSCI has started a process through which it is increasing the weighting of China A-shares in its indices.

The process of A-share inclusion in MSCI indices began on June 1, 2018 when the benchmark provider added 230 A-shares to its Emerging Market index.

Mainly because economic reforms, including Stock Connect, have made China A-shares much more accessible to international investors.

MSCI will increase A-share's weighting or inclusion factor in its indices from 5% to 20% in three steps:

  1. Raising the index inclusion factor of all China A Large Cap shares from 5% to 10% and adding ChiNext Large Cap shares with a 10% inclusion factor in May 2019.
  2. Further increasing the inclusion factor of all China A Large Cap shares from 10% to 15% in August 2019.
  3. Finally raising the inclusion factor of all China A Large Cap shares from 15% to 20% and adding China A Mid Cap shares with a 20% inclusion factor in November 2019.

China's STAR equity market, officially known as the Shanghai Stock Exchange Science and Technology Innovation Board, is focused on early-stage tech companies, featured 25 companies when it started on July 22, 2019, and is intended to be similar in form and function to the US-based Nasdaq index.

STAR market stocks are only accessible to foreign investors via the QFII and RQFII programs. Currently, foreign investors may not invest in STAR stocks via Stock Connect.

In the past, not many Chinese companies published ESG reports. However, from 2020, all listed Chinese companies will be required to produce ESG reports.

Singapore Retail Investors

PLEASE READ THESE TERMS AND CONDITIONS CAREFULLY BEFORE PROCEEDING. BY UTILIZING THE WEBSITE AND PAGES THEREOF LOCATED AT WWW.UBS.COM/AM-SG ("WEBSITE"), YOU ACKNOWLEDGE THAT YOU HAVE READ THESE TERMS AS WELL AS THE GLOBAL TERMS OF USE (collectively "TERMS") AND THAT YOU AGREE TO BE BOUND BY THEM. IF YOU DO NOT AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, YOU ARE NOT AN AUTHORIZED USER OF THESE SERVICES AND YOU SHOULD NOT USE THIS WEBSITE.

THIS WEBSITE IS NOT INTENDED FOR AND SHOULD NOT BE ACCESSED BY PERSONS LOCATED OR RESIDENT IN ANY JURISDICTION WHERE (BY REASON OF THAT PERSON'S NATIONALITY, DOMICILE, RESIDENCE OR OTHERWISE) THE PUBLICATION OR AVAILABILITY OF THIS WEBSITE IS PROHIBITED OR CONTRARY TO LOCAL LAW OR REGULATION OR WOULD SUBJECT ANY UBS ENTITY TO ANY REGISTRATION OR LICENSING REQUIREMENTS IN SUCH JURISDICTIONS.  IT IS YOUR RESPONSIBILITY TO BE AWARE OF, TO OBTAIN ALL RELEVANT REGULATORY APPROVALS, LICENCES, VERIFICATIONS AND/OR REGISTRATIONS UNDER, AND TO OBSERVE ALL APPLICABLE LAWS AND REGULATIONS OF ANY RELEVANT JURISDICTION IN CONNECTION WITH YOUR ENTRANCE TO THIS WEBSITE. EACH INVESTMENT PRODUCT AND SERVICE REFERRED TO ON THIS WEBSITE IS INTENDED TO BE MADE AVAILABLE ONLY TO RESIDENTS IN SINGAPORE.

UBS RESERVES THE RIGHT TO CHANGE, MODIFY, ADD OR REMOVE CONTENT ON THE WEBSITE AS WELL AS THESE TERMS AT ANY TIME FOR ANY REASON WITHOUT NOTICE. SUCH CHANGES SHALL BE EFFECTIVE IMMEDIATELY UPON POSTING. YOU ACKNOWLEDGE THAT BY ACCESSING OUR WEBSITE AFTER WE HAVE POSTED CHANGES TO THESE TERMS, YOU ARE AGREEING TO THESE TERMS AS MODIFIED.

The materials on this Website are distributed by UBS Asset Management (Singapore) Ltd (company registration number: 199308367C), which is licensed by Monetary Authority of Singapore ("MAS") in Singapore pursuant to the Securities and Futures Act (Chapter 289).  UBS Asset Management (Singapore) Ltd is part of the Asset Management business division of UBS Group AG. UBS Asset Management (Singapore) Ltd together with UBS Group AG and its group companies shall collectively be referred to as "UBS".

The information contained in this Website has been prepared and is intended for general circulation. The information does not constitute advice and does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The investment services or products referred to in this Website may not be suitable for all investors. UBS recommends that you independently evaluate particular investments and strategies and seek independent advice from a financial adviser regarding the suitability of such investment products, taking into account your specific investment objectives, financial situation and particular needs, before making a commitment to purchase any investment products. Investment involves risks. You should be aware that investments may increase or decrease in value and that past performance is not indicative of future performance.

The information contained in this Website is not an offer to buy or sell or the solicitation of an offer to buy or sell any investment product or to participate in any particular trading strategy.

UBS, its officers and/or employees may have interests in any of the investment products referred to on this Website by acting in various roles. UBS, its officers and/or employees may receive fees, commissions or other benefits for acting in those capacities. In addition, UBS, its officers and/or employees may buy or sell investment products as principal or agent and may effect transactions which are not consistent with the information set out in this Website.

You fully understand and agree that, by making available this Website, UBS should not be construed as making: (a) any endorsement of any investment product referred to in this Website; (b) any representation that UBS has performed any due diligence on any investment product referred to in this Website; or (c) any representation that the information in this Website is complete, accurate, clear, fair and not misleading. The use or reliance on any such information contained in this Website is at your own risk and any losses which may be suffered as a result of you entering into any investment are for your account and UBS shall not be liable for any losses arising from or incurred by you in connection therewith. UBS is not responsible or liable for the accuracy and completeness of any such information or the performance or outcome of any investment made by you after receipt of such information, irrespective of whether such information was provided at your request.

Using, copying, redistributing or republishing any part of this Website without prior written permission from UBS is prohibited. Any statements made regarding investment performance objectives, risk and/or return targets shall not constitute a representation or warranty that such objectives or expectations will be achieved or risks are fully disclosed. The information and opinions contained in this Website is based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any misrepresentation, errors or omissions. All such information and opinions are subject to change without notice. A number of comments in this Website are based on current expectations and are considered “forward-looking statements”. Actual future results may prove to be different from expectations and any unforeseen risk or event may arise in the future. The opinions expressed are a reflection of UBS’s judgment at the time this document is compiled and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed.

UBS does not hold out any of its officers and/or employees as having any authority to advise you, and UBS does not purport to advise you on any investment product. Any investment will be made at your sole risk and UBS is not and shall not, in any manner, be liable or responsible for the consequences of any investment.

This Website and its contents are provided on an “as is” and “as available” basis. UBS does not warrant: (a) the accuracy, timeliness, adequacy commercial value or completeness of this Website or its contents, and expressly disclaims any liability for errors, delays or omissions in the contents, or for any action taken in reliance on the contents; (b) that your use of and/or access to this Website or its contents, will be uninterrupted, timely, secure or free from errors or that any identified defect will be corrected; (c) that this Website or any content will meet your requirements or are free from any virus or other malicious, destructive or corrupting code, agent, program or macros; (d) that any information, instructions or communications posted or transmitted by you through this Website is secure and cannot be accessed by unauthorised third parties; and (e) that use of the contents in this Website by you will not infringe the rights of any third parties. No warranty of any kind, implied, express or statutory, including but not limited to the warranties of non-infringement of third party rights, title, merchantability, satisfactory quality or fitness for a particular purpose and freedom from computer virus or other malicious, destructive or corrupting code, agent, program or macros, is given in conjunction with this Website.

You hereby agree to indemnify UBS and any of its officers, employees or agents against, and to keep UBS and any of its officers, employees or agents harmless from, any claims (actual and threatened), settlement sums, liability, loss, damages, costs (including solicitor and client costs and expenses (legal or otherwise)), charges, expenses, actions, proceedings, whether foreseeable or not which we may sustain, suffer or incur, directly or indirectly out of or in the course of or in connection with any the following: (a) any use of this Website or the contents by you, or any part thereof; (b) UBS having made available the Website; (c) any breach of these Terms by you, however arising; or (d) any negligence, act or omission, wilful default, unlawful act, fraud and/or misconduct on your part or violation of any rights of another person or entity by you.

The funds referred to in this Website have been authorised or recognised by the MAS for sale to the public in Singapore (the “Funds”). Copies of the registered Singapore prospectuses ("Prospectuses") referred to in this Website have been lodged with and registered by the MAS. The MAS assumes no responsibility for the contents of the Prospectuses. The registration of the Prospectuses by the MAS does not imply that the SFA or any other legal or regulatory requirements have been complied with.

MAS registration is not a recommendation or endorsement of a Fund nor does it guarantee the commercial merits or performance of such Fund. It does not mean that a Fund is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors. UBS Asset Management (Singapore) Ltd has been appointed as the representative for the Funds in Singapore for the purposes of performing administrative and other related functions relating to the offer of Shares under Section 287 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA") and such other functions as the MAS may prescribe.

You may not assign your rights under the Terms without our prior written consent. UBS Asset Management (Singapore) Ltd may assign our rights under the Terms to any third party.

No person or entity who is not a party to the Terms shall have any right under the Contracts (Rights of Third Parties) Act, Chapter 53B of Singapore or other similar laws to enforce any term of the Terms regardless of whether such person or entity has been identified by name, as a member of a class or as answering a particular description. For the avoidance of doubt, this shall not affect the rights of any permitted assignee or transferee of the Terms.

These Terms shall be governed by, and shall be construed in accordance with, the laws of Singapore. The courts of Singapore shall have exclusive jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with these Terms and, for such purposes, you agree to submit  to the jurisdiction of the courts of Singapore. Each party hereby waives any objection which it might at any time have to the courts of Singapore being nominated as the forum to hear and determine any proceedings and to settle any disputes and agrees not to claim that the courts of Singapore are not a convenient or appropriate forum.

© UBS 2019 - the key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

Reset