Swissquote launched “Themes Trading” in autumn 2015, since when this platform has become a true ideas forge. The analysts of the online broker have by now opened up more than 50 themes for investment, applying their considerable expertise to actively managed indices. Among the longer-term trends that the Swissquote team reckons have great potential are what are known as Chinese dragons. The 1st of February will mark the fourth anniversary of the payment under subscription of the tracker certificate on the Swissquote China´s Dragons Index. In this case the strategy of taking a targeted position in particularly promising shares of a country has paid off, with the tracker certificate trading at more than 40% above its issuing price. To compare, the broad-based MSCI China Index actually lost value in this period. The impressive outperformance is probably directly linked to the initial idea behind this themed investment, when the Swissquote analysts took “Made in China 2025” as cause to take a much closer look at the corporate landscape of the Middle Kingdom.
In launching this initiative, Beijing is seeking to encourage domestic innovation in pioneering sectors. The aim is to expand the country’s expertise in high-tech industries and enable Chinese products to achieve a higher value added. Specifically, the country's leadership has undertaken to lift the share of core components and materials developed in the country from 40% in 2020 to 70% in 2025. In particular, China is to stop being dependent on imports. At the same time, Beijing would like to build internationally leading companies that can compete with the West’s technology giants. This presents an enormous opportunity for investors. Nevertheless, it is anything but easy to track down the most promising stocks. The heavy regulation in the People’s Republic alone acts as a stumbling block. Swissquote offers the expertise needed to discover the “Chinese dragons”. In conceiving the index, the managers concentrated on the structural changes China is undergoing. Among others, a key role here is played by sectors such as robotics, aviation, renewable energies, IT, pharmaceuticals, agriculture and vehicles with new drive forms.
To even be considered for inclusion, the shares must first meet quantitative criteria. Alongside a market capitalisation of at least USDmn 100, these include an average daily trading volume of around USD 100,000 and up. In qualitative terms, preference is given to companies from the above sectors whose business strategy is geared to China and which accordingly realise the majority of their revenue on the domestic market. Swissquote also uses quantitative calculations for the composition and ongoing review of the benchmark. These include portfolio optimisation according to the mean variance approach, for instance. The index is not allowed any short exposures. Swissquote can review the selection up to twelve times a year and adjust it where necessary (rebalancing).
The current composition includes both internationally known large caps from the Middle Kingdom and a raft of Far Eastern speciality stocks. Among the first group is BYD. Founded in 1956, the group is tracking the mega-trend of e-mobility through its vehicle division. BYD also supplies components and high-tech materials to manufacturers of smartphones and other mobile devices. The third pillar of the Shenzhen-based company is a battery and photovoltaics segment. Compared with this huge group, China Rare Earth is a stock market lightweight. As the name suggests, the holding company from Hong Kong is actively involved in the rare earths sector. The index covers the health sector with CSPC Pharmaceutical, among others. This company supplies the Chinese market with finished medicinal products, which are also sold in large containers (bulkware). CSPC is active in the therapeutic fields of diseases of the nervous system, oncology, infections and cardiovascular diseases. The tracker certificate from Leonteq gives investors a simple way of brining the diversified and actively managed selection into their portfolio. The management fee is 0.70% p.a. A transaction fee is also charged in the event of changes to the index composition – more details on this can be found on the termsheet. Holders of the product will not only profit from possible price increases, but also share in the dividends. Distributions from the companies included in the index will result in a corresponding adjustment of the underlying.
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