"A50", the investment concept that continues to be popular in 2024.
The constituent stocks that are more concentrated than the traditional CSI 300 can better represent the leading power of A-shares, which is where the value of the "A50" lies.
On this road, FTSE, MSCI and CSI have launched their own A50 indexes one after another, and a number of fund companies have also issued tracking index funds, and the market is very lively.
One of the questions that this article wants to explore is: do these A50 indices need to rotate between them?
The sudden power of the MSCI A50
The reason why this topic came to mind is because of the sudden momentum observed in the MSCI China A50 Connect Index recently.
Looking at the trend of the past half year ending April 9, it has outperformed the CSI A50 Index.
When the CSI A50 Index was released earlier, I wrote an analysis pointing out that this index had a late-mover advantage as an index that was only released at the end of last year.
But obviously, the recent MSCI China A50 interconnection has a "sudden rise" flavor.
So, I'm going to use the "rotation prism" chart that I observe the rotation of the indexes to observe the rotation pattern of the two indices since their release.
Notice the odds curve in the lower half of the figure below. The black curve is the ratio of the MSCI China A50 Connect divided by the CSI A50, the blue dotted line is the 252-day moving average based on the ratio, the red and green dotted lines are the Bollinger Bands based on the 252-day moving average plus minus 2 standard deviations, and the gray dotted line is the 1250-day (roughly 5-year) moving average.
The black curve is downward, indicating that the CSI A50 is stronger relative to the MSCI China A50 Connect, and the opposite curve is upward, indicating that the MSCI China A50 Connect is stronger than the CSI A50. It is clear that there have been three significant rotations in the last decade or so. From 2015 to mid-2019, the CSI A50 was dominant, from mid-2019 to the end of 2022, the MSCI China A50 Connect was dominant, and from the end of 2022 to the end of last year, the CSI A50 was dominant.
Past performance of the index is not indicative of future risk warnings
Long-time readers of EarlETF know that when the odds curve touches the upper 252-day Bollinger Bands upwards (in the green circle in the chart), there may be a false breakout, but more often than not, it is a reversal of strength. From this perspective, it is worth paying attention to whether the MSCI China A50 Connect will strengthen relative to the CSI A50.
A50 is different from A50
Although they are all A50, there are still differences in the compilation rules of MSCI, FTSE and CSI A50, and this difference also leads to differences in actual connotations.
Since the constituent stocks of the FTSE China A50 are not even in Wind, only MSCI China A50 Connect and CSI A50 can be compared here.
The chart below is a comparison of the industry distribution of the two indexes according to the 31 first-level industry indices of Shenwan, and in general, the industry distribution of the CSI A50 is more obvious. Specifically, the differences between the two are mainly in the three industries of banking, electronics and non-banking. MSCI China A50 has a high allocation of banks and a low allocation of non-banks, while the CSI A50 is the opposite, with a low allocation of banks and a high allocation of non-banks. In addition, the allocation of MSCI China A50 to the electronics industry is much higher than that of CSI A50.
Source: Wind Financial Terminal
The chart below shows the market capitalization distribution of the two indexes, and it can be seen that the MSCI China A50 Connect is more large-market than the CSI A50 Index.
Source: Wind Financial Terminal
Over the past period, banks have performed significantly better than non-bank finance. The following table shows the comparison of the trend of Shenwan's 31 primary industry indexes so far this year, which can be seen from this disparity.
Source: Wind Financial Terminal as of 09-Apr-2024
This may be an important reason for the relative strength of the MSCI China A50 Connect, and if you have similar expectations in the future, then it is clear that you need to take a high look at the MSCI China A50 Connect.
The preference for foreign capital cannot be ignored
When talking about the difference between MSCI China A50 Connect and CSI A50, in addition to the connotation of the index itself, the preference of overseas markets cannot be ignored.
The issuance of MSCI China A50 Connect related index products was a high-level event at that time. On the one hand, it was the Hong Kong Stock Exchange that launched stock index futures, and on the other hand, the A-share market launched the corresponding ETF.
An important recent example of this is the successful launch of Singapore's Phillip-CUAM MSCI China A50 Connect ETF. Currently, there are several A-share ETFs tracking MSCI China A50 Connect. In the author's opinion, the recent outstander is CUAM's MSCI China A50 ETF (560050.SH).
Recently, Singapore's Phillip Capital Management partnered with China Universal Fortune to launch a new exchange-traded fund – Phillip-China Universal MSCI China A50 Connect ETF), this innovative product was officially listed on the Singapore Exchange on March 20, 2024, with an initial offering size of 68.95 million Singapore dollars (about 370 million yuan). This product is listed under the ETF product interconnection plan of the Shanghai Stock Exchange and the Singapore Exchange. It can be seen that overseas funds are still interested in MSCI China A50 interconnection.
In fact, after carefully comparing the trends of MSCI China A50 Connect and CSI A50, I think there is a factor that cannot be ignored is the inflow of foreign capital. The chart below is the monthly net inflow of northbound funds from 2019 to March 2024, after the 2020 wave of MSCI China A50 Connect was stronger than the CSI A50, on the one hand, the continuous inflow of northbound funds, and on the other hand, the concept of "core assets" is deeply rooted in the hearts of the people, and a large number of A-share public offerings also pursue the same investment philosophy.
If, at a time when the A-share correction continues to show investment value, and core assets come back into focus, will the relative strength of the MSCI China A50 Connect tracked by the MSCI China A50 ETF (560050.SH) become a continuing event?