China A50 Trading Guide: How to Trade the FTSE China A50

The FTSE China A50 (CN) is key to understanding China's economic power. Similar to how the Dow Jones Industrial Average (DJIA) tracks US giants, this index follows China's top companies, making it a popular index for those interested in trading the Asian stock market.

TL;DR

• Launched in 2003, the FTSE China A50 tracks 50 of China's biggest companies listed on the Shanghai and Shenzhen stock exchanges.
• It is a popular way to trade China's growth through a stock market index of A-Share companies.
• Stocks from the 'Food, Beverage, and Tobacco' & 'Banks' sectors represent almost 50% of the index's composition as of December 2023.
• The three most important Chinese firms included in the China A50 index are Kweichow Moutai, Contemporary Amperex Technology, and China Merchants Bank. They represent more than 25% of the index as of March 2024.
• Traders can trade the China A50 index through different financial products with CFDs or Contracts For Difference being one of the most popular instruments for retail speculators.

Understanding the China A50 Index: What Does the FTSE China A50 Index Represent?

What Is the FTSE China A50 Index?

The China A50 (CN) index acts like a compass for China's biggest businesses. It tracks the top 50 companies (based on market capitalisation) listed as A-Shares on both the Shanghai and Shenzhen stock exchanges. This single index gives traders a handy tool to gauge the overall health of China's leading corporations.

When Was the China A50 Created?

The FTSE Russell, a world provider of stock market indexes and benchmarks, launched the FTSE China A50 index in 2003. The Singapore Exchange (SGX), a leading futures exchange in Asia, launched the FTSE China A50 Index Futures index contract in 2006.

How Is the China A50 Calculated?

Just like other indices, such as the FTSE 100 (UK 100), the NASDAQ (NQ), and the DAX 40 (FDAX), the FTSE Russell's China flagship index is a free float market capitalisation-weighted index, which means larger companies have a bigger influence on the index's overall performance.

What Are the FTSE China A50 Trading Hours?

The FTSE China A50 is a real-time tradable index with an opening time of 09:30 AM and a closing time of 15:00 PM in local China time (China Standard Time, GMT +8). The Shanghai and Shenzhen stock exchanges’ market hours are from 09:30 AM until 11:30 AM and then from 1:00 PM to 3:00 PM in local China time. Thanks to extended trading hours from the SGX, it is possible to trade the FTSE China A50 index Futures around the clock.

What Currency Is the China A50 Index Denominated in?

The underlying index (FTSE China A50) is priced in three currencies: CNH (offshore yuan), HKD (Hong Kong dollar), and USD (US dollar) for end-of-day values. Real-time calculations use CNH only. The SGX FTSE China A50 Index Futures are settled in CNH, but the SGX platform can display prices in USD for American investors, as the SGX FTSE China A50 is a USD-denominated futures contract approved by the Commodity Futures Trading Commission (CFTC) for American investors.

Constituents of the China A50 Index

China A50 Sectors' breakdown

The China A50 reflects different parts of the Chinese economy. Let's take a look at which stock sectors have the biggest impact on the index's performance through the Industry Classification Benchmark (ICB).

The ICB supersector of the China A50 index*:

1. Food Beverage and Tobacco - 8 shares - 27.85%
2. Banks - 12 shares - 21.31%
3. Industrial Goods and Services - 4 shares - 9.49%
4. Energy - 5 shares - 7.93%
5. Insurance - 3 shares - 4.59%
6. Utilities - 2 shares - 4.48%
7. Health Care - 2 shares - 4.45%
8. Financial Services - 3 shares - 3.86%
9. Consumer Products and Services - 3 shares - 3.68%
10. Automobiles and Parts - 2 shares - 3.02%
11. Basic Resources - 1 share - 2.43%
12. Telecommunications - 1 share - 1.99%
13. Chemicals - 1 share - 1.82%
14. Construction and Materials - 1 share - 1.54%
15. Retailers - 1 share - 1.17%
16. Technology - 1 share - 0.39%

*As of March 2024.

Top 10 FTSE China A50 Constituents

Understanding the China A50's heavyweights is important to have a better idea of the companies that drive the index's performance.

The Top 10 companies in the FTSE China A50 index*:

1. Kweichow Moutai - Consumer Staples - 15.9%
2. Contemporary Amperex Technology - Industrials - 5.3%
3. China Merchants Bank - Financials - 4.2%
4. China Yangtze Power - Utilities - 4.2%
5. Wuliangye Yibin - Consumer Staples - 4.0%
6. Ping An Insurance (2318. HK) - Financials - 3.2%
7. Industrial & Commercial Bank of China - Financials - 2.7%
8. BYD (1211. HK) - Consumer Discretionary - 2.6%
9. Shenzhen Mindray Bio-Medical Electronics - Health Care - 2.6%
10. Agricultural Bank of China - Financials - 2.5%

*As of December 2023.

When Is the Composition of the China A50 Index Reviewed?

To ensure the index reflects the ever-changing Chinese market, FTSE Russell reviews the A50's components four times a year - in March, June, September, and December. This review considers company data up to the Monday following the third Friday of the previous months (February, May, August, November) and any adjustments are implemented at the close of business on the third Friday of the quarter (March, June, September, December).

What Is the China A50 Index CFD on Plus500?

On Plus500's CFD trading platform, China A50 (CN) is the symbol representing the CFD or Contract For Difference of the FTSE China A50 index Futures prices. CFDs are financial agreements between a trader and a broker to speculate on the price movements of an underlying asset, here the FTSE China A50 Index Futures contract on the Singapore Exchange (SGX).

What Moves the Price of the China A50 Index?

The China A50 doesn’t move in a straight line - it can move up and down based on various events. Let's explore some factors that can influence the index's performance:

• Individual China A50's index constituents' performance.
• Corporate earnings.
• Unexpected world events such as wars, natural disasters, and pandemics.
• Economic indicators such as GDP, PCE, CPI and PMI among other statistics.
• Local monetary policy from the People's Bank of China (PBOC) and global central banks' decision.
• Government policies.
• Regulatory changes from the China Securities Regulatory Commission (CSRC).
• Trade relations with other big economies such as the Sino-American relationships.
• Exchange rates, mostly the currency pairs including the CNY such as the USD/CNH (USDCNH).
• Market sentiment.

The Chinese stock market can be unpredictable. So, while knowing the factors influencing the China A50's value is useful while trading the index, do not base your trading decisions solely on past performance, as it isn't a guarantee of future results.

Why Might Traders Decide to Trade the China A50 Index CFDs?

As the FTSE China A50 index holds a significant position for traders interested in the Chinese market, let's take a look at some of the key advantages that make it appealing:

• China A50 tracks the 50 largest and most liquid companies in China, which means that trading the index allows traders to gain exposure to the overall performance of these leading players in China's economic growth.
• The China A50 index is relatively liquid and accessible.
• The FTSE Russell and the SGX act as official data and index providers for the China A50.
• Moreover, the index includes large local companies, which means that it is easier for traders to access public information about these companies.
• Some derivatives like CFDs allow traders to use leverage to seize both bull and bear markets. Leverage can magnify both potential profits and losses, which can trigger potential significant losses.
• A few financial products are based on the FTSE China A50 index, such as Exchange-Traded Funds (ETFs), futures and options*, which can fit a variety of trading styles.

*Availability based on regulation.

Is Trading the CFDs on China A50 Risky?

Trading the FTSE China A50 index may be a strategic move for some traders, but it can certainly be risky and has its own limitations. Here are a few of them:

• Compared to some more established markets such as the S&P 500 or the Europe 50 (FESX), finding reliable information about the China A50 and its component companies can be trickier due to the language barrier.
• The time difference between China and major trading hubs like Europe and the US can be a challenge for some traders.
• Among the biggest risks of trading CFDs on the China A50 index is the leverage, as it can magnify both potential profits and losses, which can trigger potential significant losses.

How to Trade the China A50 Index: Creating a Trading Plan

Mistakes are inevitable in trading. However, by acknowledging and learning from past errors, as well as by handling their emotions when facing trading losses, traders can potentially improve their decision-making. As a structured approach to trading the China A50 might give traders every chance possible, here are some key steps to consider:

Choose a trading strategy to trade the FTSE China A50 index

The selection of your trading strategy should be done by taking into account your trader profile, trading goals, availability, trading capital, time horizon, and risk appetite.

Day trading, swing trading, and position trading through news trading, trading range, support and resistance trading, volatile markets trading and breakout trading are among some of the most popular trading strategies.

Select a market analysis method to analyse the China A50

To enter or exit a trade on China A50, you can either choose to dissect price action with trading tools on charts via technical analysis or rely on economic forces thanks to fundamental analysis.

Determine how to enter and exit positions and how to manage your risk

Once you've determined the way you'll analyse the FTSE China A50 index and select your trading style and strategy, you will have to work on​ the specific trading setups you'll be watching out for to open and close your trades.

Some traders focus for instance on overbought and oversold Relative Strength Index (RSI) situations with higher trading volume, and others on potential long-term turning points based on momentum changes with the Coppock Curve indicator.

Another key aspect of your trading strategy should be to focus on money and risk management tools that can help you protect your trading capital. You could for instance refine your position sizing strategy and implement effective stop-loss with the use of a risk/reward ratio.

Adopt the right mindset and monitor your trades

While some factors of CFD trading can be complex, trading psychology and emotions can also significantly impact your trading decisions. So it could be useful for traders to understand how their emotions can influence them to adopt the right trading mindset and follow a disciplined trading approach. For that, it might be interesting to start by evaluating your trading and making the required changes.

China A50 Trading — Frequently Asked Questions (FAQs):

How can I trade China’s economic growth through its stock market?

Trading the FTSE China A50 index through CFD is a popular way to take advantage of China's economic fluctuations. However, there are other ways to trade China's stock market such as trading financial products on mainland Chinese markets: the Shenzhen Stock Exchange (SZSE) and the Shanghai Stock Exchange (SSE), trading the Hang Seng Index (HSI) from the Hong Kong Stock Exchange or the TAIEX index from the Taiwan Stock Exchange, trading China-focused ETFs and trading stocks.

Who created the FTSE China A50 index?

The FTSE China A50 is a product of FTSE Russell.

What companies are included in the FTSE China A50?

Bank of China, BYD, Haier Smart Home, and PetroChina are examples of some of the FTSE China A50’s 50 components.

How can I trade the FTSE China A50 CFDs?

If you decide to get into China A50 CFD trading, you should first learn what the FTSE China A50 index is and what affects its value, as well as how CFD trading works. Then, you should work on your trading plan. Depending on your risk tolerance, your financial goals, and your strategy, there are different trading styles you can use to trade the FTSE China A50, such as China A50 day trading and swing trading. It might be relevant to write down all the rules about your trading setups and money and risk management in your trading plan. Finally, you can consider opening a trading account on Plus500 when you're ready to trade the FTSE China A50.