China's Stocks: A Primer

Saturday, August 19, 2017 // Written by Enzio von Pfeil

Ever got confused by China's alphabet soup when it comes to As, Hs, Ps,  and Red Chips? Let's clear the fog!

  1. Source. The following comments have been lifted from the Financial Times' (FTs') marvelous "China-tracking indices to be simplified" of 18th August 2017, p. 18
  2. What happened on 17th August 2017.  "Hang Seng Indexes laid out plans add ...10 leading red chips and P-chips to its main China-tracking gauge, the H-share based Hang Seng China Enterprises Index....The 10 stocks to be added to the HSCEI will be selected early next year (i,.e. 2018, your author) and gradually added to the index in five stages from March 2018."
  3. Why it happened.  "The changes by Hang Seng Indexes are the latest effort by index providers to better reflect the performance of Chinese companies...Depending on the benchmark...Chinese stocks this year are up as much as 36 per cent. according to MSCI China, or down by 4 per cent for those following the Shenzhen Composite...While the HSCEI has long been used as the main gauge of Chinese stocks' performance in Hong Kong, H-shares now only account for about a third of total Chinese market capitalization in Hong Kong. Meanwhile, interest in P-chips has grown rapidly, with trading volumes trebling since 2004, , to account of over a fifth  of all trading."  
  4. A shares.   Onshore - listed shares of China's State-Owned Enterprises (SOEs), quoted in RMB.
  5. B shares.   Also listed on the mainland, these are quoted in US- or HK dollars, and also can be traded by foreigners.
  6. H-shares. Offshore-listed shares of China's SOEs. These have been listed mainly in Hong Kong, often with a dual A-share listing in China. H-share companies are more centrally-controlled, and need mainland regulatory permission to raise equity or borrow..   Tsingtao Brewery was the first such an  H-share. ICBC is another  H-share: incorporated in China, with a Hong Kong listing. 
  7. N-shares. Also known as American Depository Receipts. Alibaba is such an N-share.
  8. P-chips.  The private China equivalents of Red Chips, i.e. privately-backed groups incorporated outside the mainland. Tencent, domiciled in the Cayman Islands, is such a P-chip. 
  9. Red chips.  SOEs incorporated outside the mainland, listed in Hong Kong and quoted in HK dollars.. Red chips have fewer constraints than H-shares do China Mobile, incorporated in Hong Kong, is such a red chip, along with PetroChina and Citic.. 
  10. S-chips are listed in Singapore.
  11. HSCEI. This is the H-share based Hang Seng China Enterprises Index. It is laced with 40 financial and industrial stocks, and has risen by 15%  this year.  Last week it was announced that 10  Red Chips would be added to this index by March 2019..  It is considered the China benchmark for the Hong Kong market. 
  12. HSCACI. This is the red-chip equivalent to the HSCEI, and stands for Hang Seng China Affiliated Companies Index.
  13. Sapiente sat? Is your commercial curiosity satiated, or have you further questions?

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