China Stock Index: Preliminary list of stocks 4 comments

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As mentioned earlier, I have culled a list of China stocks to form my China Stock Index (the, ahem, Singapore CSI), to be updated daily here. The index is meant to be a trader's & investor's index, so my preliminary thoughts are that it should capture short-term market interest (hence high-volume stocks) AND long-term fundamental growth of China and its various sectors represented on the SGX(hence stocks with track record and high market capitalisation). In short, sentiment combined with fundamentals.

The list of stocks totals 26 (out of an initial list of China-linked stocks of ~150) which are chosen on the basis of the following:
1. Market cap
2. Trading liquidity
3. Track record
4. Expectation of future performance (stability, growth, trading liquidity)
5. Intangibles (eg. institutional coverage, relevance to China sentiment, mindshare in investors' and traders' general attention span)

The index will be weighted by market cap, as per normal, which means stocks like Cosco will have a bigger weightage.

Note the Adjusting Index Factor, a discount factor to the market cap, in the list. For most China stocks it is 1 (ie. no discount), but for some stocks (5 of them) which I would consider part-China themed stocks, I assign 0.5 to them. It is rather arbitrary, but I know from experience that people don't usually think about HTL, Want Want, DMX, Noble, Midas in terms of China-themed stocks; yet these substantially-sized companies conduct their operations almost entirely in China, and their fortunes are too fundamentally linked to the relevant sectors of the China economy to be left out.

Depending on general observation, I will withdraw or add new stocks where appropriate. Placements, delistings, rights issues of the index stocks will be updated (the maths is trivial, those who are interested can e-mail me).

Lastly, just to pre-empt comments on notable omissions to the index stocks:
- Stocks with doubtful past histories will be omitted because there is too much baggage eg. CAO, United Food, even China Paper (anyway this one has too low market cap)
- New IPOs (say, in 2006) are generally given less priority because of limited track record, but I exercise my discretion on this
- China Fisheries, Pine Agritech: I prefer to track their parent companies Pacific Andes and People's Food, and I don't want to over-weigh the index with these stocks (a case of double-counting)
- Oldies like Surface Mount, Tianjin Zhongxin - too thin liquidity, little mindshare

Hope to get your support and comments before I start updating tomorrow. Cheers!

PS No. 1: Note this is not a recommendation list of China stocks. In fact, some of these feature in my previous hotstocksnot postings (valuation concerns). However, I would consider their operations as generally quite steady and established.

PS No. 2: It is interesting to compare this SGX China index stocks with the HSCEI (Hang Seng China Enterprises Index) which comprises 38 component stocks. Besides the obvious disparity in total market cap (SGX CSI with total ~S$18B compared with HSCEI's S$320B), the difference in allocation is also rather glaring: the former is consumer stock-heavy (~45%) by market cap with industrials forming another 30%, the latter is financials and oil/gas-heavy (combined ~85%). This trend is likely to extend into the future, as both exchanges pursue different niches.