By Christopher Vass, senior product manager
In late February, amidst the pandemic in China, one domestic index jumped to its highest finish since July 2016. The FTSE China A Innovative Enterprises Index measures the performance of innovative enterprises listed on the Shenzhen Stock Exchange ChiNext market. Year-to-date the index is bucking the global trend of red figures by being in the green with a performance of 16.7% YTD vs. -4.3% for the FTSE China A Stock Connect CNY Index.
Reasons for the performance this year can be found in the Industry breakdown of the index. It is mainly tracking IT and Healthcare companies. Contrary to other blue-chip China A benchmarks, Financials are not even represented in the index.
The divergence in Industry performance for onshore Health Care & Technology stocks vs. Financials is illustrated by the chart below.
In 2015, the Shenzhen Stock Exchange revamped the ChiNext board as 464 firms listed on the exchange. FTSE decided to include ChiNext listed stocks when A-shares started to be phased into global indices in June 2019. Today, 68 ChiNext companies are included in the FTSE China A Stock Connect CNY Index and represent 7.5% of the index weights.
International investors are also paying more attention to ChiNext stocks, which is evident in the increased holdings through the Northbound Stock Connect Program. On average the top 20 constituents have seen the percentage of foreign holdings double the last 12 months. Even during the turbulent months this year, foreign investors were net-buyers.
Despite having a smaller market-cap than the Shanghai Stock Exchange and representing a smaller weight in major China A shares indices, the Northbound flows into Shenzhen listed stocks has outpaced Shanghai. From September 2019 throughout March 2020, the net-flow into Shenzhen has been CNY 122BN vs. 90BN for Shanghai
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