CHINA GROWTH! EXEMPLIFIED!!
Quoted:
"China’s equity market is relatively young. The Shanghai & Shenzhen Stock Exchanges opened in December 1990 during Chairman Deng Xiaoping’s famed ‘Reform & Opening Up’ initiatives. The markets were tiny, listing only eight names with a market cap of USD 500 million. Growth has been swift in the interim, however. As of February 2017, 3137 companies can be found on the exchanges, with a market cap more than RMB 50 trillion. In addition to listing on Mainland markets, the largest Chinese firms & State Owned Enterprises (SOEs) also list on the Hong Kong Stock Exchange. Although the Hong Kong Exchange is governed differently than the Shanghai & Shenzhen exchanges, the three are often grouped together in the “Greater China” category. Today, the total market capitalization of Greater China’s equity market exceeds USD 10.8 trillion, the second largest market after the United States!
Although Mainland China’s two exchanges were developed around the same time, they serve very different functions. The stately Shanghai exchange has historically listed China’s most prominent large cap companies— State Owned Enterprises (SOEs), banks & energy firms— sectors collectively known as “Old China.” Shenzhen, however, plays host to small & mid cap private sectors names. Moreover, the ChiNext Market of fast-growing technology firms is also based in Shenzhen.
The Shanghai Stock Exchange (SSE) originated in the late 1800s as a hub for merchants to purchase interests in startup ventures in the newly-opening China. Trading at the thriving reform was halted during Mao Zedong’s tenure, & subsequently restarted under Deng Xiaoping’s Reform & Opening Up. After commencing operations on December 19, 1990, the exchange quickly overtook its rival in Shenzhen to become China’s dominant exchange by market capitalization, trading volume, & securities turnover. The dominance continues today, with the SSE listing 1224 companies with a market cap of RMB 30.37 trillion, as of February 2017.
The Shanghai Exchange hosts a number of financial instruments, included among them A-Shares, B-Shares, open & closed ended funds, warrants, T-bond repos, & convertible bonds. The primary benchmark used to gauge Exchange performance is the SSE Composite Index.
The Shenzhen Stock Exchange (SZSE) was also launched in December 1990, but imbued with a more specific mandate. It was structured to promote small and medium size enterprise development and encourage the national strategy of independent innovation. After years of development, the SZSE consists of three main exchanges to serve companies of different sizes and maturation— the Main Board, the Small and Medium Enterprise (SME) Board and the ChiNext Market. The SZSE’s market capitalization is RMB 23.45 trillion as of February 2017.
Products traded on the SSE include equities, bonds, and mutual funds. Within these categories, many sub-product lines are present including A-Shares, B-Shares, indices, open and closed-ended funds, fixed income products such as asset backed securities, and derivatives such as warrants and repurchase agreements. In contrast to SSE, several benchmarks are used to gauge Shenzhen’s performance such as the SZSE Component Index, SZSE 100 Index, SME Index, & ChiNext Index.
An additional level of complexity is inherent in China’s market structure— the presence of multiple share classes. Historically, regulators have restricted foreigners’ access to Mainland markets, depriving investors of the significant growth opportunities associated with China’s emergence onto the global stage.
The gradual loosening of these controls has resulted in the presence of multiple share classes. These classes afford different privileges depending on where the investor purchases the stock, where the listed company is incorporated, and the currency in which the stock is denominated. Most are concerned with A-Shares because it is the class most representative of Mainland China’s economy. For example, many Chinese companies in sectors such as military, healthcare, traditional medicine, Chinese spirits, & certain consumer goods are only listed in Shanghai & Shenzhen, not international exchanges. As such consumption-related sectors play an increasingly important role in the China growth story, foreign investors cannot gain proper exposure to China without accessing these sectors and companies— access which can only be found on Mainland exchanges.
After 20 years of development, the China A-Share market has grown significantly. As of September 2016, there were more than 2953 China A-Share companies listed on the SSE & SZSE. Participants in the China A-Share market include retail investors, institutional investors, & listed companies.
A Note on A-Shares vs. H-Shares:
Despite the superior access granted by A-Shares, H-Shares (Mainland hinese companies listed in Hong Kong) remain popular with global investors. Although the H-Share universe is limited–comprised of 212 companies–investors flock to them because Hong Kong’s legal and market frameworks are more familiar to the Western mindset.
A shares = Open only to mainland citizens and the Qualified Institutional Investors ("QFIIs") / Renminbi Qualified Institutional Investors ("RQFIIs") systems.
H shares = Open to international investors." ~ end quote.
HOPE THIS HELPS PROVE STRENGTH OF THE CHINA EQUITIES MARKET & YSYB'S HUGE potential!
Note: ( Numbers quoted on previous post are equities within China, versus here.)
POSITIVE PROOF YSYB'S POTENTIAL IS HUUUGE!
AI
