By Nicolas Fonseca, CFA
Van Eck Associates Corporation
China remains one of the world’s fastest growing economies. Its economy is undergoing a shift to focus more on consumer-driven, “new economy” sectors, and reduce its dependence on imports. This blog is intended to answer frequently asked questions about investing in China and VanEck ChiNext ETF (CNXT®).
- Q: Why was CNXT’s index changed and what is the new index?
- Q: What is the ChiNext Market and what types of companies are listed there?
- Q: How can investors access these emerging industries?
- Q: What companies are included in the ChiNext Index?
- Q: How often is the index rebalanced?
- Q: How does performance of the ChiNext Index compare to the SME-ChiNext 100 Index?
- Q: How does the ChiNext Index compare to other Chinese benchmarks?
Q: Why was CNXT’s index changed and what is the new index?
A: Effective December 10, 2021 at the market close, CNXT’s index changed from the SME-ChiNext 100 Index to the ChiNext Index.
The previous index (SME-ChiNext 100 Index) included companies listed on two separate boards of the Shenzhen Stock Exchange: the SME Board and ChiNext Market. In February 2021, Chinese regulators approved the merger of the Main Board and the SME Board to simplify the overall structure of the stock exchange, resulting in two clearly differentiated listing venues: the Main Board and ChiNext Market. Since the SME board no longer exists, the change resulted in a partially stagnant initial universe as companies that IPO on the Main Board are not eligible for the old index. However, since the launch of CNXT in 2014, the ChiNext Market has grown in size and liquidity. We believe a ChiNext-only index may be attractive for investors seeking exposure to fast-growing, innovative onshore Chinese companies with a low weight to state-owned enterprises.
The new index is the ChiNext Index, which comprises the 100 largest and most liquid A-share stocks listed and trading on the ChiNext Market of the Shenzhen Stock Exchange.
Q: What is the ChiNext Market and what types of companies are listed there?
A: According to the Shenzhen Stock Exchange, the ChiNext Market provides an important platform for implementing the national strategy of independent innovation by helping to accelerate the transformation of economic development and galvanize growth in emerging industries of strategic importance. As of November 11, 2021, there are 1,057 listed companies on the ChiNext Board.
Late 2020, China issued a plan to boost the development of the strategic emerging industries with its main goal to reduce its dependence on technology imports and instead to develop and rely on its own economy. The key industries mentioned were:
- New-generation information technology
- Biotech industry
- High-end equipment manufacturing
- New materials
- New energy industry
- Intelligent and new energy vehicles
- Energy saving and environmental protection
- Digital creative industry
Q: How can investors access these emerging industries?
A: VanEck ChiNext ETF (CNXT) provides exposure to the 100 largest and most liquid China A-share stocks listed and trading on the ChiNext Market of the Shenzhen Stock Exchange. New economy sectors, such as information technology, consumer discretionary, consumer staples and health care, are well-represented in the fund’s underlying index, with exposure primarily to privately owned SMEs.
Q: What companies are included in the ChiNext Index?
A: All A-Shares listed on the ChiNext Market of the Shenzhen Stock Exchange are eligible. The top 100 names based on the daily average total market cap and daily average trading volume within the last six months are selected for inclusion.
ChiNext Index Top 10 Constituents:
|Contemporary Amperex||19.89||Global leader of new energy innovative technologies, committed to providing premier solutions and services for new energy applications worldwide. Manufacturer specialized on lithium-ion batteries for electric vehicles and energy storage systems.|
|East Money||7.23||Engaged in the operation of internet financial service platforms. It includes brokerage, investment fund agency, financial advisory, investment consulting, asset management, margin financing and securities lending, among others.|
|EVE||4.36||Global lithium battery company which possesses core technologies and solutions for consumer, power, IoT and renewable applications. Its products are used in smart meters, remote control data acquisition systems, intelligent security, intelligent home, intelligent transportation, data storage and transmission, medical equipment, oil drilling and military applications.|
|Sungrow Power||4.07||The world’s most bankable inverter brand and leader of innovation in the solar industry. It is committed to providing clean power for all and is steadfast in its efforts to becoming the global leader of clean power conversion technology.|
|Mindray Bio-Medical||3.98||Global medical instrumentation developer, manufacturer involved in the sale, research and development of household products and medical equipment. It also develops, manufactures, markets, and sells electro-medical equipment in the patient monitoring, laboratory instrument, and medical ultrasound fields.|
|Inovance Technology||2.82||Leading global provider of industrial automation solutions. Its flexible production techniques and expert understanding of all industry sectors has allowed the company to establish globally leading industry-specific business units.|
|Walvax Biotechnology||2.79||Biotech company involved in the research, development, production and distribution of vaccines, monoclonal antibodies and blood products.|
|Aier||2.54||China’s leading ophthalmology hospital group that covers Asia, Europe, and North America with huge scale and outstanding medical capacity.|
|Zhifei Biological||2.39||High-tech biological enterprise integrating the R&D, production, marketing, distribution as well as import and export of the production of vaccines for human use.|
|Lead Intelligent||2.02||World’s leading manufacturer of new energy equipment. It mainly focus on seven industries, including Lithium-ion battery, Photovoltaic, 3C, warehouse & logistics system, automobile, fuel cell and laser.|
Source: Shenzhen Stock Exchange, FactSet. *As of 11/30/2021. Indices are not securities in which investments can be made.
Q: How often is the index rebalanced?
A: The index is rebalanced semiannually, on the second Friday of June and December.
Q: How does performance of the ChiNext Index compare to the SME-ChiNext 100 Index?
A: As of 11/30/2021, the ChiNext Index has outperformed the SME-ChiNext 100 Index since June 2010 on a cumulative basis, and over recent trailing periods. Note that the key difference between the two indices is the eligible universe covered by each, which is based on listing venue. The ChiNext Index is based on the 100 largest and most liquid A-share stocks of the ChiNext Market, which tends be large cap and some mid cap vs. the SME-ChiNext 100, which comprises SMEs (small and medium enterprises) of both the original SZSE SME and ChiNext markets.
ChiNext Index vs. SME-ChiNext 100 Index Returns
|YTD*||1Y||3Y||5Y||10Y||Since June 2010|
|SME-ChiNext 100 Index||12.64%||24.83%||37.63%||13.51%||10.75%||10.15%|
* Returns less than one year are not annualized.
Source: Bloomberg as of 11/30/2021. Indices are denominated in CNY and then translated into USD using Bloomberg FX. Past performance is not a guarantee of future results. Investors cannot invest directly in the Index.
Q: How does the ChiNext Index compare to other Chinese benchmarks?
A: The ChiNext Index aims to reflect the performance of the ChiNext Market, which provides an important platform for implementing the national strategy of independent innovation by helping to accelerate the transformation of economic development and galvanize growth in emerging industries of strategic importance thus the higher allocation to Industrial, Healthcare and IT sectors. Broad based indices generally cover the entire investable market regardless of listing venue and may include both slower growth companies including a higher exposure to state owned enterprises, as well as higher growth companies that may not considered strategically important including those which have been the subject of regulatory scrutiny in China recently.
ChiNext Index Sector Breakdown vs Other Chinese Indices
|GICS Sector||ChiNext Index||SME-ChiNext 100
|MSCI China Index||MSCI China A
|MSCI China All
As of 11/30/2021.
Source: Shenzhen Stock Exchange and FactSet for ChiNext Index and SME-ChiNext 100 Index. MSCI for MSCI China Index, MSCI China A Index and MSCI China All Shares Index.
Originally published by VanEck on December 14, 2021.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
ChiNext Index comprises the 100 largest and most liquid A-share stocks listed and trading on the ChiNext Market of the Shenzhen Stock Exchange.
SME-ChiNext 100 Index tracks the performance of the 100 largest and most liquid China A-share stocks listed and trading on the ChiNext Board of the Shenzhen Stock Exchange and originally listed on the Small and Medium Enterprise Board of the Shenzhen Stock Exchange and trading on the Main Board of the Shenzhen.
MSCI China Index tracks large and mid-cap stocks across China A shares, H shares, B shares, Red chips, P chips and foreign listings.
MSCI China A Index tracks large and mid-cap stocks across China securities listed on the Shanghai and Shenzhen exchanges.
MSCI China All Shares Index tracks the opportunity set of China share classes listed in Hong Kong, Shanghai, Shenzhen and outside of China.
Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. Certain indices may take into account withholding taxes. Investors cannot invest directly in the Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Index returns assume that dividends have been reinvested.
The Fund is subject to risks which include, among others, risk of the RQFII regime and the Fund’s principal investment strategy, investing in China and A-shares, ChiNext Market, investing through Stock Connect, foreign securities, emerging market issuers, foreign currency, consumer staples sector, health care sector, industrials sector, information technology sector, small- and medium-capitalization companies, cash transactions, equity securities, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and concentration risks, all of which may adversely affect the Fund. Foreign and emerging markets investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, changes in currency exchange rates, unstable governments, and limited trading capacity which may make these investments volatile in price or difficult to trade. Small- and medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.