What is an A share
China's stock market: The classes of stocks: A, B, and H shares
The Chinese stock market has been divided into different classes of shares for a long time. But there are already signs of a comprehensive change for the next few months that will give the market a further boost.
There are currently 3 classes of shares:
A shares: With more than 1,400 companies, A shares make up the bulk of all stocks. These companies are based and do the majority of their business in mainland China.
Until 3 years ago, only Chinese investors could buy these stocks. It is now also possible for institutional customers from abroad to acquire these shares.
Due to a valuation markup on the other share classes, the A shares are not in great demand with foreign investors. These shares are traded in the Chinese currency yuan on the Shanghai and Shenzen stock exchanges.
B shares: are insignificant in contrast to A shares, since only around 2% of all shares belong to this class. Although they were already acquired by foreign investors in 1993, interest is low. The stocks are traded in US dollars and yuan.
But since September 2006 there has been a steep upward trend in this market. The reason: There are rumors that the A and B shares will be merged. The merger will benefit B-share owners.
Many B shares are still being traded at a discount of up to 50%. The merger would align the valuation.
H shares: For you as a German investor, this type of share is best suited to investing in Chinese companies.
The "H" stands for Hong Kong. These companies are based in China, but the total of around 200 shares are not allowed to be bought by the Chinese. As a result of the Hong Kong listing, these stocks will be quoted in Hong Kong dollars.
The three main indices
In order to benefit from the boom in Chinese equities, broadly diversified fund and index investments are ideal for you.
In the following, the “Investment Advisor” will introduce you to the 3 most important Chinese stock indices in more detail. You can find specific purchase recommendations from page C 26/012.
The blue chips in the Hang Seng Index
The counterpart to the DAX is the Hang Seng Index in Hong Kong. As in Germany, the Asian index contains the country's largest listed companies, which is why this stock market barometer is also known as the “blue chip” index.
The Hang Seng Index has been calculated since 1964, with a starting level of 100 points. The weighting of the index is based on market capitalization. This key figure results from the number of all shares issued, which is then multiplied by the price.
Until recently, the largest index value of all 33 stocks was HSBC Holding with a share of 29%. This was followed by the wireless operator China Mobile with 18%.
The conglomerate Hutchison Whampoa and the oil company CNOOC brought in significantly less, each with around 5%. The entire index currently has a market capitalization of € 616 billion.
In September, however, there was a fundamental change in the Hang Seng Index, as up to 5 additional companies will gradually switch from the H Index to the Hang Seng Index.
This is to take account of the growing importance of Chinese stocks. In addition, the maximum weighting in the index is reduced to 15%.
In October 2006, the Hang Seng Index reached a new all-time high of almost 19,400 points. The valuation is currently with a price / earnings ratio of around 13 in the international average. In view of the higher growth rates, share prices still have room for improvement.
The "H-Shares" in the Hang Seng China Enterprise Index (H-Index)
H shares are shares in Chinese companies listed on the Hong Kong Stock Exchange. They are tradable for foreign investors without restrictions.
This makes them particularly interesting for the many funds geared towards Asia. The H-Index currently includes the 37 most important companies.
The shares in the H-Index are weighted according to the market capitalization of the "free float" shares, ie the shares that are actually in circulation. In addition to the heavyweights in the index (see table), there are also a large number of smaller commodity values.
The top 5 stocks in the H-Index
Overall, the raw material values have a weighting of around 30%. Together with the index heavyweight Petrochina, this results in a raw material share in the index of 46%.
China's hunger for raw materials is growing enormously
The table shows the estimated daily oil consumption in 1,000 barrels per day. As you can see, China's oil consumption is growing significantly faster than in other regions due to the high economic growth.
This makes it clear that this index is very much dependent on a continuation of the positive environment in the commodities sector. But this can be assumed in China for the next few years.
The market capitalization of the H-Index is around € 165 billion and the price-earnings ratio is around 14. At over 9,000 points, the index has clearly exceeded the previous high of 1997 of 7,742 points.
You can find out how you can now benefit from the further potential of the index on page C 26/012.
The Hang Seng China Affiliated Corp. Index ("Red Chips")
Behind the designation “red chips” are stocks that are listed on the Hong Kong stock exchange and are still at least 35% owned by the Chinese state or one of its state-owned companies.
In this segment, China Mobile, one of our favorite stocks for 2007 from the previous issue (Favorite stocks - A 37), is the biggest stock. The mobile phone company has an index weighting of 54%.
This index therefore depends very much on the performance of this one share. The second largest share is the oil company CNOOC with an index share of 16%. Because of this one-sided structure, it is also not advisable to use this index directly.
Kuehne + Nagel swallows leading Asian air freight forwarder Apex The logistics group Kuehne + Nagel has announced the largest acquisition in its company's history. The logistics company snatched the Chinese Apex Group for more than $ 1.5 billion. > read more
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