- In the 2018 YTD, the FTSE ST China Index has declined 6.6% inclusive of dividends, compared to the China’s CSI 300 Index decline of 17.1%. This brings the three year SGD total return (through to 25 Sep) of the FTSE ST China Index to 12.0% and -0.9% for the CSI 300.
- Effective 24 September, Delong Holdings and EC World REIT have joined the FTSE ST China Index. The Index consists of FTSE ST All-Share Index constituents with at least 50% of their revenues in China, or 50% of operating assets in Mainland China.
- In the Sep quarter-to-date, the FTSE ST China Index has generated a third of the declines of the CSI 300 Index; and has been led by Yangzijiang Shipbuilding Holdings & Geo Energy Resources which have averaged 21.7% total returns since the end of June.
Performance of Asia Pacific stock indices in the 2018 year-to-date have been mixed, ranging from total returns of +8.3% for the Nikkei 225 to -17.1% for the CSI 300, in SGD terms. Similarly the FTSE A50 Index which is 94% correlated to the CSI 300 has declined 12.6%.
The span of the performance differential of the China benchmark to Japan’s benchmark is demonstrated through the inter-market price ratio spread of the FTSE China A50 Index (11,608) to the Nikkei 225 (23,940). At a price ratio of 0.4849, the ratio is more than two standard deviations from the three year mean price ratio of 0.5625. Both these indices are tradable via SGX-listed equity derivatives, with an inter-market margin offset of 50%, when traded in the ratio of one SGX Nikkei 225 Index Futures to 10 SGX FTSE China A50 Index Futures (more information available here).
Recent Comparative Returns & the New Growth Paradigm
From 2015 onwards, China has been registering economic growth between 6% and 7%. For the first half of 2018, its GDP growth rate was reported to be 6.8%. As highlighted last week by Economist Nicolas Lardy (click here) a useful and frequently updated gauge on the China economy and is domestic demand is its imports – which is up 20% in the first eight months of 2018, with no evidence of a softening pace in recent months.
Between 1999 and 2014, China averaged a significantly higher annual economic growth rate of 9.6%, reaching as high as 14.2% in 2007. The recent moderation in its growth rates, which remains above the developing economy average, has coincided with the Central Government policy of pursuing high-quality growth rather than high-speed growth. The structural shift, and accompanying modernizing policies have also reigned in share market returns relative to the preceding years of high-speed growth.
Over the past three years through to 25 September the FTSE ST China Index generated a 12.0% total return which compared to a 0.9% decline in total return for the CSI 300 Index. The FTSE ST China Index consists of stocks of the FTSE ST All-Share Index that have reported either at least 50% of their sales revenues from Mainland China, or reported at least 50% of their operating assets are located in Mainland China.
The FTSE ST China Index is also a historically less volatile Index than the CSI 300 Index. The one-year and three-year annualised volatility of the CSI 300 is 18.3% and 19.8% respectively, compared to 10.7% and 13.4% for the FTSE ST China Index.
Source: SGX, Bloomberg (Data as of 25 September 2018)
The FTSE ST China Index is increasingly taking more market cues from China stocks. According to Bloomberg data, the FTSE ST China Index currently maintains a 69% correlation to the weekly price moves of the STI and a 38% correlation to the CSI 300.
In recent years the correlation to the STI has been gradually decreasing, from 84% three years ago. Meanwhile the correlation of the FTSE ST China Index to the CSI 300 Index has gradually been increasing to 38%, from just 17% three years ago. The correlation to the CSI 300 Index reached as high as 47% in February this year, however outperformance of the FTSE ST China Index from then, through to the week ending 21 September has seen the correlation ratio move back to 38%.
FTSE ST China Index New Constituents
Effective 24 September, Delong Holdings and EC World REIT have joined the FTSE ST China Index.
- Delong Holdings is a steel manufacturing and trading group headquartered in Beijing, China. Its flagship business, Delong Steel, is located 430km southwest of Beijing in the industrial city of Xingtai in Hebei Province, placing it in proximity to raw material sources and an extensive client base encircled by the Bohai Economic Zone. For more details click here.
- EC World REIT was established with the investment strategy of investing principally, directly or indirectly, in a diversified portfolio of income-producing real estate which is used primarily for e-commerce, supply-chain management and logistics purposes, as well as real estate-related assets, with an initial geographical focus on the PRC. As of April 2018, its portfolio comprised of seven properties in China. The six properties acquired at IPO are located in Hangzhou, and the seventh property, acquired on 16 April 2018, is located in Wuhan. For more details click here.
In the September quarter-to-date, the FTSE ST China Index, with a 1.9% decline in total return, has generated a third of the declines of the CSI 300 Index at -5.9%. The comparative total returns of the 10 largest weights of the FTSE ST China Index are detailed below.
*Note 4.0% return from 6 August 2015 – 25 September 2018. Source: SGX StockFacts & Bloomberg (Data as of 25 September 2018)
With three trading sessions remaining for the quarter, the FTSE ST China Index has been led by Yangzijiang Shipbuilding Holdings and Geo Energy Resources which have averaged 21.8% total returns since the end of June.
Geo Energy Resources joined the Index in September last year which has coincided with its increasing revenue exposure to China. Geo Energy Resources represents the Mining, Oil & Gas Sector focused on the explorers, developers and producers of minerals, oil and gas. As of July this year, the Singapore segment maintained higher P/E valuations and turnover velocity relative to comparative segments in the Australia and Hong Kong market.
Delong Holdings, which joined the Index effective Monday is now the best performing of the Index constituents in the September quarter-to-date and 2018 year-to-date. The two least performing stocks of the Index in the 2018 year to date were Hi-P International and SIIC Environment.
Did you Know?
Beyond the FTSE ST China Index constituents, Singapore lists approximately 110 companies and trusts with their principal place of business in China, in addition to many more Singapore-based companies and trusts that generate revenue in China or base assets in China.