As an alternative to the more common index spread betting, you might like to try betting on the China Enterprises. You can expect this index to be fairly volatile, and to react differently to economic news than the Western indices; but as China is heavily involved in the world economy there will also be many similarities.
The current spread bet quotation for the China Enterprises, called China H-shares with some spread betting providers, is 10,187.0 – 10,199.0. If after reviewing it you decide that it might go up, you could place a bet on this at the price you name, say £4 per point. This is a “buy” bet, or a “long” bet, so is placed at the higher number, and will be closed at the lower number of a future quotation.
Suppose that the index is quoted later and 10,763.2 – 10,775.2, and you close your bet. You can work out how much you won like this: –
You opened your bet at 10,199.0. Your spreadbet closed at 10,763.2. That means that you gained 564.2 points. You placed your spread bet at £4 per point, so you have to multiply the number of points you gained by the stake to find your winnings. 564.2 times £4 means you have won a total of £2256.80.
But when you’re doing any sort of financial trading, you have to accept that sometimes you will lose. Say that the index went down after you placed your first bet, you would have to close your bet and take your losses. If the index is quoted at 9988.6 – 10,000.6 when you closed your bet, this is how you can figure out how much you lost –
You opened your bet at 10,199.0. You close your bet at 9988.6, which is a loss of 210.4 points. At your given stake of £4 per point, you have lost a total of £841.60.
With spread betting, it’s just as easy to bet on an index going down. Going back to the original quote for the China Enterprises Index of 10,187.0 – 10,199.0, suppose that you placed a “sell” bet, or a “short” bet instead. You bet £2 per point, and the bet goes on at a price of 10,187.0.
Now if the index goes down to 9988.6 – 10,000.6, you can close your bet for a gain. The number of points you have gained is 10,187.0 less 10,000.6, that’s 186.4 points. As you staked £2 per point, you have gained £372.80.
Apart from looking for clues in the charts for which way an index will go, the other thing you must do to be profitable at spread betting is to cut your losses quickly once it becomes clear that the bet will not succeed. Say the index started going up in this case, and you saw no sign of it stopping, you would want to close your bet quickly, at say 10,211.5 – 10,223.5.
This time the point difference, which counts against you, is 10,223.5 less 10,187.0, that’s 36.5 points. Multiplying that by your stake, you find you have lost just £73.
How to Spread Bet China Enterprises
If you want to spread bet on the China Enterprises Index, the first thing you must be clear about is what this means. You see the Hang Seng, the producer of indices for the Hong Kong stock market, also produce the China Enterprises Index. This means it is more fully called the Hang Seng China Enterprises Index, and when you search for this online you may find you are redirected to the Hang Sang Index, which is the general index for that stock market.
Part of the reason for the confusion is that there are many mainland China Companies listed on the Hong Kong Stock Exchange. In fact you will sometimes see the China Enterprises Index described as the China H-shares index, and that is how it is listed with the spread betting company IG Index. The Hong Kong stock market is used for listing many Chinese companies, and these stocks are called H-shares. H-shares are for companies which are incorporated in China, regulated by Chinese authorities, but listed on the Hong Kong exchange and denominated in Hong Kong dollars.
The whole thing can be quite confusing but the China Enterprises Index is based on shares of about 90 mainland Chinese companies, those that comply with Hong Kong regulations and reporting rules. As you frequently find, there is a cap on the share of any particular stock in the index, set at 15%. Other than that, the index is weighted by market capitalization ratio, after adjusting for the stock flotation. Frequently, Chinese companies that want to be traded in the world will float stocks on both the internal Chinese stock exchanges and on the Hong Kong stock exchange. The Chinese government imposes restrictions on who can trade in the mainland markets, for which you must be a mainland resident.
There are several factors that indicate that you can expect this index to be very volatile. First, when companies trade both in the mainland and in Hong Kong they are frequently “out of sync” with regard to the value of the shares. Lack of a free market can build up pressures that cannot be resolved easily. Secondly, it has become obvious that some Chinese companies do not hold to the same standards of accounting as those in the West, and sometimes this can lead to surprises if not manipulation.
So if you want to spread bet on the China Enterprises Index, be prepared for interesting things to happen. Barring outright manipulation, you should still find that technical analysis is your friend, and can reflect the market sympathies of the investors. Even allowing for the differences of an Asian market, human nature will usually be revealed by the technical indicators. It is not sufficient to try and eyeball or guess the future direction of the market, you need to have an established trading strategy figured out and preferably back tested on the index, and you should be careful to adhere closely to your stop loss criteria so that you can protect your capital from loss.