Emerald Yau
- Market Significance: The FTSE China A50 Index represents a third of all A Shares by weight but less than 1% by number.
- Green Shift: Exposure to green companies like EVs and renewable energy in the A50 Index has risen from 4.4% to 15% in 20 years.
- Industry Diversity: Financials still dominate but have diversified, while healthcare, technology, and consumer industries are gaining prominence.
Comprised of the largest 50 A Share companies, the FTSE China A50 Index (“A50 Index”) is one of the most recognised China A Share market indices in the international investor community. Today, multiple ETFs and index funds globally track the A50 Index, with combined assets under management of US$4.9 billion[1].
But how many of the following facts do you know about the A50 Index?
Less than 1% of A Shares by number but one-third by weight
The A50 Index contains 50 China A Shares. That figure is less than 1% of the total number of 5,354 A Shares listed on Chinese domestic stock exchanges (as at the end of September 2024), according to the China Association for Public Companies.
So, does that mean the index is not that significant? Well, remember that these are the largest 50 companies in China’s domestic market. On a full market cap basis, when combined, these companies represent about a third of the total A Share market (referencing the FTSE China A All Cap Index), or, put another way, a significant 47% of China’s large cap A Shares universe (referencing the FTSE China A Large Cap Index).
Therefore, while seemingly insignificant in terms of number of constituents, the A50 Index is still relevant when it comes to the China A Share market.
Exhibit 1: A50 Index representation
Source: FTSE Russell, China Association for Public Companies (https://www.capco.org.cn/sjfb/dytj/index.html).
(Left chart) Number of A Shares as of 30 September 2024. “Total Listed A Shares” includes 2267, 2834, and 253 A Shares listed in Shanghai, Shenzhen, and Beijing stock exchanges, respectively. (Right chart) Full market cap data as of 31 October 2024. Please see the end for important legal disclosures
7 original companies remain in the current A50 Index composition
The A50 Index was introduced by FTSE Russell in 2003. It was one of the first A Share indices from an international index provider.
Over the 21 years since the index’s launch (as at the end of October 2024), 174 different A Share companies have been A50 Index members.
At that date, each constituent in the current composition of the A50 had spent an average of 10 years in the index. 7 of the original 50 companies are still in the current A50 Index and four of these have always been part of the index.
Exhibit 2: Seven current constituents were part of the original A50 Index at launch
| Company | ICB Industry | |
|---|---|---|
| China Merchants Bank | Financials | Always part of A50 Index |
| Citic Securities | Financials | Always part of A50 Index |
| Shanghai Pudong Development Bank | Financials | Always part of A50 Index |
| China Petroleum & Chemical | Energy | Always part of A50 Index |
| China Yangtze Power | Utilities | Absent in 2015 |
| Ping An Bank | Financials | Absent in 2010 |
| Wuliangye Yibin | Consumer Staples | Absent in 2014 & 2015 |
Source: FTSE Russell, as of 31 October 2024. Please see the end for important legal disclosures.
Bottoms up!
At 80-120 proof, or 40-60% ABV, China’s baijiu (a traditional Chinese liquor) is not for the faint of heart.
Baijiu manufacturers are only listed in China domestic markets as A Shares.
At the launch of the A50 Index in 2003, Wuliangye Yibin was present in the index with a weight of 1.5%. Kweichow Moutai was added in 2004, with a similar weight of 1.6%.
While Kweichow Moutai and Wuliangye Yibin have been staple constituents of the A50 Index since the early days, another top baijiu company, Luzhou Laojiao was inducted into the A50 Index four years ago with a weight of 1.9%.
The rise of China’s middle class, along with their greater levels of disposable income and their adoption of e-commerce, have seen the consumption of baijiu gaining popularity over the last two decades. Premium baijiu brands such as Kweichow Moutai and Wuliangye Yibin are particularly sought after as luxury gifts, further driving the demand for such products.
Against this backdrop, Kweichow Moutai thrived and its weighting in the A50 Index grew to 15.9% at the end of 2023, cementing its status as the largest single security weighting to ever feature in the index. At the same time, the top three baijiu companies in aggregate represented 22% of the A50 Index.
Exhibit 3: Aggregate weight of baijiu companies in A50 Index increased almost 15x in 20 years
Source: FTSE Russell, as of end of 2023. Please see the end for important legal disclosures
How many shades of green?
In 2020, China President Xi Jinping announced that China would march towards carbon neutrality by 2060.
Broader government efforts have focused on achieving carbon reduction targets, including detailed measures on cutting the intensity of emissions, boosting renewable energy and investing in low-carbon technologies. These measures are also set to help accelerate the shift towards green transportation by means of cleaner and more energy-efficient vehicles, crowning China as the leader in the global electric vehicle (EV) market.
This supportive policy environment has nurtured the growth of China’s sustainable industries. These large “green” companies are involved in a wide range of businesses, from EVs to hydropower, and energy storage.
As a result, the A50 Index – which captures the largest 50 A Share companies – is also getting “greener”.
On the one hand, exposure to “dirty” companies in the A50 Index has reduced significantly. The number of companies involved in oil, gas, coal and conventional electricity dropped from 8 in 2003 to 5 as at the end of October 2024. Their total weight declined from 14% to around 6% over the same period.
On the other hand, A50 Index’s exposure to “clean” companies (those contributing to carbon reduction) has increased substantially. The number of companies engaging in alternative energy, alternative electricity (excluding nuclear), EV and battery technology has risen from just 1 in 2003 to 5 as at the end of October 2024. Their aggregate weight has risen from 4.4% to 15% over the same period.
Exhibit 4: The A50 Index has become “greener”
"Dirty" Companies
"Clean" Companies
Source: FTSE Russell, as of 31 October 2024.
Oil, Gas and Coal represents ICB Sector Oil, Gas and Coal exposure in the A50 Index. Conventional Electricity represents ICB Subsector Conventional Electricity exposure. Alternative Energy represents ICB Sector Alternative Energy exposure. Alternative Electricity (ex Nuclear) represents ICB Subsector Alternative Electricity exposure, excluding nuclear power companies (China National Nuclear Power). EV includes BYD, SAIC Motor and Great Wall Motor exposure in the ICB Subsector Automobiles, and data is captured only from 2015 when these domestic automobile manufacturers started to introduce EVs to the market. Battery Tech includes Contemporary Amperex Technology. Please see the end for important legal disclosures.
Is the A50 Index diversified?
The A50 Index is now relatively more diversified than at other points in its history.
10 out of 11 industries are currently represented in the A50 Index. Real estate has been absent since 2023 given the recent years of turmoil in China’s property sector.
With a weight of 32%, financials remained the most heavily weighted industry in the A50 Index as at the end of October 2024. This is hardly surprising. The shares of large banks and financial services companies in China are liquid and typically allow for greater levels of investability, resulting in a heavier allocation in the market cap weighted A50 Index. At one point in the history of the index, the financials industry exceeded a weighting of 66% (as at end of 2016), more than double its October 2024 weight!
Exposures within the financials industry have become more diversified over the years as well. Initially, over 90% of the financials exposure in the A50 Index came from banks. That ratio has dropped to below 70% (as at the end of October 2024), as companies specialising in insurance, investment services and financial data have taken their seats in the index.
What is also fascinating is the addition of health care and technology companies to the A50 Index, as well as the increase in consumption exposure across consumer discretionary and consumer staples industries. This all points to the fact that China economy is slowly transforming and evolving.
As China’s policymakers shift their focus from their decades-long investment-led growth and industrial policies towards more consumption-led economic growth, the A50 Index could become further diversified as the non-financials industries gain importance in the Chinese economy.
Exhibit 5: A more diversified A50 Index vs. history
Source: FTSE Russell, as of 31 October 2024. Please see the end for important legal disclosures.
The bottom line
The A50 Index is a pioneer in tracking the A Share market’s performance.
Its methodology has undergone multiple enhancements to accommodate international investors’ needs – foreign ownership limits, sanctioned stock treatment, Northbound Stock Connect eligibility requirements – to name a few. Yet the approach has always remained transparent, with a straightforward market cap weighting. As such, the A50 Index has stayed representative and relevant for investors looking for exposure to China’s domestic markets.
21 years since its launch, the A50 Index remains one of the most recognised China A Share market indices. It looks set to continue as a popular measure of large-cap performance, the underlying target of many tracker funds and a useful risk management tool.
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