How was the 500 achieved?

Let's talk about what makes a good broad market index.

In China, when people refer to the "broad market," they undoubtedly mean the Shanghai Composite Index (SSE). Whether it's the "3,000-point meme" or the "battle to defend the index," it's all about the SSE. Why the SSE? There's no particular reason—it's just a convention, a consensus born from the remnants of a wild past and collective imagination.

But even though we talk about the SSE every day, few actually invest in or trade it. For one, there aren't many index funds tracking the SSE. Even if you want to spice things up with leverage, there's little room to maneuver. It's like trying to French kiss an alligator—it looks dangerous, but you can't actually do it. Beyond index futures, there are almost no tools to leverage the SSE.

I have my own definition of a broad market index, one that doesn't rely on wild remnants or collective imagination: I believe the broad market index is simply the one with the largest tracking index fund. Naturally, it becomes the de facto benchmark for that market. For example, the S&P 500 (with its ETF, SPY) is the broad market index for U.S. stocks, as is the Nikkei 225 for Japan. A large ETF size indicates strong investability, which stems from three factors: weight representation, depth representation, and breadth diversity. SPY is also the world's largest ETF, making the S&P 500 the undisputed benchmark for U.S. stocks—even global equities. We rarely mention the Dow Jones these days because its composition is odd (though the Nikkei 225 has the same issue), leaving it marginalized and unfit as a broad market index.

So, what's wrong with the SSE that even China's largest stock ETF doesn't track it? The biggest issue is its structural problem: financials, industrials, and energy account for over 50%, resulting in poor sector representation and balance. This is the most criticized flaw. Second, it excludes all Shenzhen-listed stocks, like a U.S. index ignoring all companies west of the Appalachian Mountains—hardly "broad market."

The SSE has other issues too. Before its 2020 revision, it was a "pixiu index" (a mythical creature that only eats and never excretes), with no delistings. ST (special treatment) and *ST (delisting risk) stocks piled up, leaving the "bad apples" in the market and distorting the index's representativeness and signals.

Additionally, the SSE's total market cap weighting method gives undue influence to stocks with large total shares but low float, like the "two oil giants." These stocks often move counter to the broader market trend.

Finally, and most importantly, the SSE lacks new-economy companies. Many growth-driving firms are absent, not just from the SSE but from the A-share market altogether. The index is dominated by traditional industries, further undermining its representativeness.

Even the Wind All-A Index (which surely has its own flaws) performs better over time than the perpetually stagnant SSE, as long as it avoids over-concentrating historically burdened companies.

(Yellow line: Wind All-A Index; Red line: SSE, multi-year trend comparison)

Beyond the SSE, later broad market indices like the CSI 300 and SSE 50 still fall into the same trap.

That's why the CSI A500 Index exists—you can invest in it via ChinaAMC A500. This is an over-the-counter (OTC) index fund that directly holds a basket of stocks, offering tighter tracking than an ETF-linked fund. ChinaAMC A500's strengths are the SSE's weaknesses. Of course, due to index construction priorities, ChinaAMC A500 still overlaps significantly with the CSI 300, but the non-overlapping portions are noteworthy.

Crunching the numbers: the CSI A500 includes 266 stocks not in the CSI 300 (a 244/300 overlap). As of October 18's close, these 266 stocks had a total market cap of RMB 6.8 trillion, accounting for 19.7% of the CSI A500's weight.

What are the characteristics of these 266 stocks missing from the CSI 300?

1. Size distribution: Mostly large-caps. Of the 266, 241 (91%) are large-caps, with a combined market cap of RMB 6.5 trillion (96%). The rest are mid-caps.

2. Style distribution: Growth and cyclical dominate. Per CITIC's style classification, 151 (57%) are growth stocks (55% by market cap), followed by cyclical (23% by count, 26% by market cap), and consumer (15% by count, 14% by market cap). Stable and financial styles are minimal, each below 5%.

3. Sector distribution: Power equipment, biopharma, electronics, etc. The 266 stocks are mainly in power equipment (30, 11.3%), biopharma (26, 9.8%), electronics (23, 8.6%), and defense (20, 7.5%).

In summary, as a "Miss China" of indices, the SSE is lackluster, plagued by issues that hurt morale. Without the crown of the largest index fund, it struggles to command authority. The CSI A500 and ChinaAMC A500, as potential broad market candidates, offer balanced exposure to trading leaders, sector champions, and northbound favorites, making them high-value allocations. All they need is time to prove themselves and gain consensus.

Our analysis shows ChinaAMC A500 has consistently outperformed the CSI 300 across periods. If we shift to "QE bazooka" mode, this edge could persist. For those without brokerage accounts, OTC funds (Class A: 022430; Class C: 022431) are available on platforms like CMB, Ant, TianTian, and Licaitong—just search "ChinaAMC A500" or the fund codes.

Do you think the SSE Composite can represent A-shares on the global stage?

——————