About time too, we say, as the Financial Times reports that China's equity markets are the second-largest in the world. Being a picky lot they will only allow in 222 A share companies (as of May 2018) out of the many hundreds traded in Shanghai and Shenzhen, indices for which were created in the early 1990s.
All are priced in renminbi and are available to Chinese locals and qualified foreigners.
On 2 June IC's Trader, who looks ahead rather than in the rear-view mirror, laid out options for those wanting to invest in China. Soon the lazy can do so too via MSCI's sloppy index, which represents just 5 per cent of the mainland market. It also begs the question of whether China should be classed as a developing country or whether sheer size should mark it apart.
Let's look at the individual charts, starting with Shanghai's complete A share index. Certainly a very rocky ride since the build-up to the global financial crisis, due in part to novice investors and citizens who must save for retirement and poor health as the state does not provide. The boom in 2015 was due to central bank credit creation as quarterly GDP dipped below 8 per cent annualised, versus the more usual 11 per cent or so in the two decades to 2012. The index has been steadier since 2016 - its current observed volatility at 7 per cent is close to the lowest in its history.
For a city that borders Hong Kong, Shenzhen's A shares have few names westerners are likely to recognise, the biggest by weighting being HIKVISION, Midea Group Company and Gree Electric Appliances. The moves in 2007-08 were far more subdued - only to make up for it with a vengeance in the euphoria of 2015. Rallying slowly from what's seen as pivotal support around 1650 and while above here we would expect the market to continue on higher towards 2400, although note volatility is 11 per cent.
The China Securities Index of the top 300 A shares traded on either of the above exchanges is perhaps a more useful measure for international investors. Needless to say the picture has the same big moves of the other two, while recently observed volatility, though low by historical standards, has picked up from a record low of 4.5 per cent to 12 per cent this week. The chart pattern reflects this being a more dynamic and bullish beast.
A final chart of the Chinese yuan (renminbi) against the US dollar, a managed exchange rate smoothed by the People's Bank of China and central government policy. Currency weakness since 2014 was engineered from its strongest ever level of 6.04 per greenback. We expect months of stability around 6.85.
