NASDAQ, TAIEX, ASX200 and China A50 fun facts
Did you fully understand what you are doing when you trade these 4 stock market Indices NASDAQ 100/Composite, TAIEX/MSCI Taiwan, ASX200 and FTSE China A50?
Alternative title: Some assumptions about these stock market indices that might be wrong!
The two NASDAQs
If you meet a trader who tells you he trades the NASDAQ. Ask him ‘which one?’ There is the NASDAQ Composite and the NASDAQ 100. The NASDAQ Composite Index tracks all the stocks that trade on the NASDAQ stock market. There are over 3000+ companies where technology and internet stocks have a big presence. It is not all technology however – good ol’ fashioned financial and consumer sectors are included.
The NASDAQ 100 on the other hand is a made up of 100 largest non-financial companies. Top names in the NASDAQ 100 include Apple, Microsoft, Amazon.com, Facebook, Alphabet (better known as Google), Comcast, Intel, Cisco Systems and Amgen.
Does which NASDAQ index matter?
It does. If you are a trader, there might be very little difference. For investors however, the difference matters over time because over the past seven years, NASDAQ 100 has over-performed (red↓) the NASDAQ Composite (blue) by a pretty big margin.
Relative performance between NASDAQ Composite, S&P500, NASDAQ 100 and Dow Jones Industrial Average | Source: Nasdaq.com
Where investors are going to encounter these different indices
Take a careful look at the Contracts For Differences (CFDs) offered by market makers as well as various Exchange Traded Funds (ETFs). Look out for the underlying. For example this excellent resource on Investopedia.com shows the top 4 ETFs to track the NASDAQ. Top two listed ETFs are the Powershares QQQ (ticker: QQQ) and the Fidelity NASDAQ Composite (ticker: ONEQ). Take note: QQQ tracks the NASDAQ 100 (see here) and ONEQ tracks the NASDAQ Comp (see here).
TAIEX vs the Techy MSCI Taiwan
Local broker IG Singapore offers the Taiwan Index for trading on its CFD platform. Contract details (see here) state that the ‘Taiwan Index’ CFD is based on MSCI Taiwan. This is not a problem if you understand that there are a number of indices known as Taiwan Index.
The official Taiwan stock exchange cash index is the Taiwan Capitalization Weighted Stock Index or TAIEX. It is a self-compiled index. The MSCI Taiwan is a licensed index by MSCI. Let me just put down the constituents in the two indices so you can make a comparison.
Note: Why did I show use information from Osaka Exchange and not the Taiwan Stock Exchange? The latter is not easy to navigate but here is a link if you are keen. My point is really to point out they are different but not how different they are.
MSCI Taiwan as of end Jan 2017 | Source: MSCI
Just look at how top two companies Taiwan Semiconductor and Hon Han Precision are represented on two different indices. By the way, it is amazing that the MSCI Taiwan index might qualify to be as ‘techy‘ as the NASDAQ 100. Look at the piechart of sector weighting↓. ‘Information Technology’ – 59.66%.
Piechart of MSCI Taiwan | Source: MSCI
Not so material (but more financial) ASX 200
This might be a popular misconception among some traders only – that the ASX200 index on the Australian Securities Exchange is a commodity/material index. Some have observed that the ASX200 falls whenever there is a piece of bad data from China and the observation goes like ‘oh ya China is slowing down so Australia must be exporting less iron ore’.
Australia has top export dependency on China to ROTW | Source: Austrade
It is true that Australia is really export dependent on China and much of that export is iron ore (Australia is world’s second largest iron ore producer after China). But…
Composition of Australian exports to China | Source: Austrade
Surprise! ASX200 is really a financial index
No surprise rather – what is not financial these days? Materials turn out not so much.
The very financial China A50
Finally I turn to the China A50 that many in this community trade.
With all the excitement about China’s One Belt One Road policy, I would expect a Chinese stock index to be more railroad, more construction – that is an absolutely wrong assumption.
It turns out that China A50 is really a financial index. 43.67% weighting from bank constituents and 25.33% non-bank financial constituents.
One Belt One Road might be a huge project in terms of human determination to overcome geography in order to connect different nations through trade and travel – but of course all of that has to be financed.
In combination, FTSE China A50 is a whopping financial index with combined 69% weight made up of banks and non-banking finance companies (insurance, securities, specialists).
Table of FTSE China A50 index financial constituents and weighting (as at 19 October 2016) | Source: Wikipedia
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh's Twitter account @sohtionghum
was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015
"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."