China: it’s not the most transparent market around. Its Shanghai and Shenzhen listed A-shares are a myriad of family owned holding companies invested in everything from generic drugs to real estate, all in the same company.
Then there is the age old debate about GDP growth. Is it 6%? Or is it really 3%? And how can Beijing possibly predict China growth accurately almost each and every time? Talk about a crystal ball.
Spanish bank BBVA has their own Chinese crystal ball. It’s called the China Vulnerability Sentiment Index (CVSI) and it uses big data to “nowcast” vulnerabilities in the market there and helps identify early warning signals in real time. The index is used for policy makers, but also for fund managers who are China heavy.
“Our index is unique in the sense that it enables us to track vulnerability and sentiment along a number of risk parameters,” say BBVA researchers led by Carlos Casanova. The full report can be found here for China fans.
CVSI focuses on four main vulnerabilities that will impact the main China ETFs, namely iShares FTSE China (FXI 24,02 -0,11 -0,46%), Deutsche X-Trackers China CSI 300 (ASHR 24,53 -0,17 -0,69%) and the iShares MSCI China (MCHI 36,52 +0,48 +1,33%). The KraneShares Chinese Internet (KWEB 25,41 +0,22 +0,87%) ETF is less correlated to those funds, which are heavily weighted in financials, real estate and industrial sectors of the economy more dependent on government policies.
Of the four, BBVA is looking at state enterprise leverage; housing prices and sales; shadow banking at the municipal level; and the forex.
“In addition to acting as a gauge of sentiment and vulnerability in China, empirical results show that the CVSI can be used to nowcast as a leading indicator for Chinese risk premiums,” Casanova says.
For China bond investors, a growing part of the China investment story, the index notes a high correlation with the Sovereign Credit Default Swap (CDS). In other words, worsening sentiment or risk narratives on vulnerabilities will be reflected on risk premiums, this way investors have a better sense of pricing. Are they paying too much for risk?
BBVA says the index is not designed to forecast economic activity, but it has been used by the bank to predict other indicators of economic activity, as a proxy to the Purchasing Manager’s Index.
HSBC also has similar index proxies, all designed to give foreign investors a better sense of the government’s claim of Chinese economic activity. Using Big Data To Really Understand China
China: it’s not the most transparent market around. Its Shanghai and Shenzhen listed A-shares are a myriad of family owned holding companies invested in everything from generic drugs to real estate, all in the same company.
Then there is the age old debate about GDP growth. Is it 6%? Or is it really 3%? And how can Beijing possibly predict China growth accurately almost each and every time? Talk about a crystal ball.
Spanish bank BBVA has their own Chinese crystal ball. It’s called the China Vulnerability Sentiment Index (CVSI) and it uses big data to “nowcast” vulnerabilities in the market there and helps identify early warning signals in real time. The index is used for policy makers, but also for fund managers who are China heavy.
“Our index is unique in the sense that it enables us to track vulnerability and sentiment along a number of risk parameters,” say BBVA researchers led by Carlos Casanova. The full report can be found here for China fans.
CVSI focuses on four main vulnerabilities that will impact the main China ETFs, namely iShares FTSE China (FXI 24,02 -0,11 -0,46%), Deutsche X-Trackers China CSI 300 (ASHR 24,53 -0,17 -0,69%) and the iShares MSCI China (MCHI 36,52 +0,48 +1,33%). The KraneShares Chinese Internet (KWEB 25,41 +0,22 +0,87%) ETF is less correlated to those funds, which are heavily weighted in financials, real estate and industrial sectors of the economy more dependent on government policies.
Of the four, BBVA is looking at state enterprise leverage; housing prices and sales; shadow banking at the municipal level; and the forex.
“In addition to acting as a gauge of sentiment and vulnerability in China, empirical results show that the CVSI can be used to nowcast as a leading indicator for Chinese risk premiums,” Casanova says.
For China bond investors, a growing part of the China investment story, the index notes a high correlation with the Sovereign Credit Default Swap (CDS). In other words, worsening sentiment or risk narratives on vulnerabilities will be reflected on risk premiums, this way investors have a better sense of pricing. Are they paying too much for risk?
BBVA says the index is not designed to forecast economic activity, but it has been used by the bank to predict other indicators of economic activity, as a proxy to the Purchasing Manager’s Index.
HSBC also has similar index proxies, all designed to give foreign investors a better sense of the government’s claim of Chinese economic activity.