The Chinese stock market is an exchange where shares of Chinese companies are traded. Established over 100 years ago, it is the second largest market in the world after the United States market. On June 20, 2017, Morgan Stanley Capital International announced that it would add Chinese A-shares to its emerging markets index. In June 2018, the company announced the names of over 200 companies. This move increased the size of the Chinese stock market by $11 billion. It forced asset managers tracking the index to purchase Chinese A-shares for their own portfolios. The emerging markets index has $1.8 trillion in assets.
Chinese Market Volatility
In 2015 and 2016, the Chinese stock market experienced significant volatility that made it seem like a casino. One reason for this volatility is that the market is thinly traded. Only 7% of the Chinese population owns stocks. Due to the low participation of individuals in the market, a small number of wealthy investors own 80% of the tradable shares. They are the ones who drive the volatility of stock prices in the Chinese stock market.
The Chinese Stock Market and the Chinese Economy
Chinese leaders encourage investment as part of economic reform. A healthy stock market will fund innovative small companies and boost the growth of the Chinese economy. It will provide an alternative to bank debt. In an effort to curb volatility, the Chinese Securities Regulatory Commission established automatic trading halts in January 2016. However, the commission withdrew these halts after only four days, as they only made matters worse.
Chinese Stock Exchanges
There are two exchanges in mainland China. The Shanghai Stock Exchange and the Shenzhen Stock Exchange were opened by the Chinese government in 1990 as a way to modernize the Chinese economy. The Hong Kong Stock Exchange is integrated with other Chinese exchanges, making HKEx an unofficial part of the Chinese stock market.
Chinese Stock Indices
The Shanghai Composite Index tracks the performance of the Chinese shares listed on the Shanghai Stock Exchange. It does this by tracking the daily price movements of A-shares and B-shares based on the total number of shares issued. Price changes of larger companies have a greater impact on the index than those of smaller companies. This means it is a market capitalization-weighted index, similar to the S&P 500.
The Shenzhen Composite Index tracks the prices of A-shares and B-shares on the Shenzhen Stock Exchange. It is also a market capitalization-weighted index.
The Hang Seng Index tracks the prices of stocks on the Hong Kong Stock Exchange. It reports on the prices of the largest and most traded companies listed on the Hong Kong Stock Exchange. No company can represent more than 10% of the index value. Like the Shanghai index, it weights stock prices by the number of shares. It also weights values by a free float factor. There are four sub-indices: commerce, industry, finance, public services, and real estate.
History of the Chinese Market
The first stock exchange in China opened in the 1960s in Shanghai. It closed for 41 years during the Cultural Revolution. In 1990, the Shanghai Stock Exchange reopened. Individual investors purchased shares of state-owned enterprises.
Source: https://www.thebalancemoney.com/china-stock-market-shanghai-shenzhen-hong-kong-3305480
Leave a Reply