Listing on the Shanghai Stock Exchange. How to invest in the Chinese stock market

The Shanghai Stock Exchange (SSE) is a stock exchange based in the city of Shanghai, China. It is one of two stock exchanges operating independently in the People's Republic of China. The Shanghai Stock Exchange is the sixth largest stock exchange in the world by market capitalization of $2,300 billion as of December 2011. Unlike the Hong Kong Stock Exchange, the Shanghai Stock Exchange is still not fully open to foreign investors due to strict controls by the Chinese authorities on foreign capital transactions. The exchange is a member of the Federation of Stock Exchanges of Asia and Oceania. In addition to the SSE, the Shenzhen Stock Exchange operates in China.

The present exchange was re-established on November 26, 1990 and has been in operation since December 19 of the same year. It is a non-profit organization directly administered by the China Securities Regulatory Commission (CSRC).

History of the Shanghai Stock Exchange

The formation of the International Settlement (foreign concession areas) in Shanghai was a result of the Treaty of Nanjing of 1842, and subsequent agreements between Chinese and foreign governments played a key role in the development of foreign trade in China and the foreign public in Shanghai. The securities trading market in Shanghai began in the late 1860s. The first list of shares appeared in June 1866, by which time the International Settlement of Shanghai had developed the conditions conducive to the emergence of a market: several banks, a legal framework for joint stock companies, and an interest in diversification among the established trading houses (Although the trading houses themselves remained partners).

In 1891, during the boom in mining stocks, foreign businessmen founded the "Shanghai Sharebrokers" Association, headquartered in Shanghai, which was China's first stock exchange. In 1904, the association applied for registration in Hong Kong under the provisions of the Act. about companies and was renamed the "Shanghai Stock Exchange" (Shanghai Stock Exchange). Offers to place securities came mainly from local companies. In the early days, banks offered personal shares, but by 1880 the exchange entered the wider market.

After the Treaty of Shimonoseki in 1895 between the Empire of Japan and the Qing Empire, after China's defeat in the Sino-Japanese War of 1894-1895, China began to be divided territorially. Foreign enterprises were created in China. Rubber plantations became a staple of early trading in the second decade of the 20th century.

Later, in 1920 and 1921, the Shanghai Securities & Commodities Exchange and the Shanghai Chinese Merchant Exchange began operations. The merger of the sites took place in 1929, and the combined markets operated thereafter as the Shanghai Stock Exchange.
By 1930, Shanghai was recognized as a financial center in the Far East, where Chinese and foreign investors could trade stocks, futures, and make transactions. Operations on the Shanghai Stock Exchange came to an abrupt halt during World War II. On December 8, 1941, the exchange actually stopped working.” In 1946, the Shanghai Stock Exchange resumed its activities, but only for 3 years. In 1949, after the Communist Revolution, work was stopped again.

After the end of the Cultural Revolution, when Deng Xiaoping came to power, China was reopened to the outside world in 1978. In the 1980s, China's securities market developed in tandem with the country's economic reform, following the principle of opening up and developing a socialist market economy. On November 26, 1990, the Shanghai Stock Exchange was reinstated and began operations a few weeks later on December 19 of the same year.

Key dates in the history of the Shanghai Stock Exchange:

1866 - First mention of the start of trading.
1883 - The credit crisis led to speculation in Chinese companies.
1890 - Banking crisis in Hong Kong.
1891 - Formation of the Shanghai Sharebrokers Association.
1895 - The Treaty of Shimonoseki opened the Chinese market to foreign investors.
1904 - renamed the Shanghai Stock Exchange.
1909-1910 - rubber boom.
1911 - revolution and abdication of the Qing dynasty. Founding of the Republic of China.
1914 - Market closed for several months due to the Great War (World War I)
1919 - Speculation in cotton stocks.
1925 - second rubber boom.
1929 - Shanghai Securities & Commodities Exchange and Shanghai Chinese Merchant Exchange were merged into the existing Shanghai Stock Exchange.
1931 - Japanese troops invade Northern China.
1930 - dominance of shares of enterprises involved in the production of rubber.
1941 - The market closed on Friday 5 December. Japanese troops occupied Shanghai.
1946-1949 - Temporary resumption of the Shanghai Stock Exchange until the Communist Revolution. Founding of the People's Republic of China in 1949.
1978 - Deng Xiaoping became the dominant figure in China's leadership, thus beginning the period of China's opening to the rest of the world.
1981 - Trading in Treasury bonds was resumed.
1984 - Trading of shares of corporate companies began in Shanghai and other cities.
1990 - The Shanghai Stock Exchange officially reopens and operates as usual.
2001-2005 - four-year market decline due to internal circumstances in the country with a peak in 2001. The ban on new IPOs was introduced in April 2005 to curb the market decline and regulate the trading of existing shares.
2006 - SSE resumed full operations after a year-long ban on IPOs, which was lifted in May.
2007-2008 - The period of stock market madness. Traders' attention is focused on the profitable and inexpensive Chinese market, which makes the Chinese stock exchange temporarily the second largest in the world in terms of sales. The active period ended in 2008 due to the global economic crisis.
2010 - Agricultural Bank of China completed its IPO, the world's largest to date, valued at US$22.1 billion.

Black Tuesday for the Chinese stock market

February 27, 2007 was called “Black Tuesday” for the Chinese stock market. The Shanghai Composite Index lost nearly 9 percent during the session, its highest in 10 years. The fall occurred on concerns that China's stock market is operating on speculative measures. At the beginning of 2007, the Chinese stock market became a profitable means of earning money for the middle class. The number of registered brokers has exceeded 80 million people. The market has grown in just a few years. Stocks have fueled growth in China's economy.
However, on Tuesday, the words of Vice Speaker of the PRC Parliament Zheng Xiwei became key. In January, he warned of a “stock bubble.” By Tuesday evening, the index closed trading at 2,771.8. The panic caused a strong fall, after which the policy was changed.
Black Tuesday had a serious impact on other global stock markets. Almost all major world indices fell that day.

Shanghai Stock Exchange Main Index:

The SSE Composite (Shanghai Composite) index is the most commonly used index on the Shanghai stock exchange. It reflects the market performance of the SSE sector. The constituents for the SSE Composite Index are all shares (B-shares) listed on the Shanghai Stock Exchange. The index was launched on July 15, 1991. At the end of 2006, the figure reached 2,675.47 points. Other important indicators used in the Shanghai Stock Exchange are the SSE 50 Index and the SSE 180 Index.

The index includes the following large-cap companies: PetroChina (RMB 3,656.20 bln), Industrial and Commercial Bank of China (RMB 1,417.93 bln), Sinopec (RMB 961.42 bln), Bank of China (RMB 894.42 bln), China Shenhua Energy Company ( 824.22 bln yuan), China Life (667.39 bln yuan), China Merchants Bank (352.74 bln yuan), Ping An Insurance (272.53 bln yuan), Bank of Communications (269.41 bln yuan), China Pacific Insurance (256.64 bln yuan).

Opening hours and features of securities of the Shanghai Stock Exchange

The Shanghai Stock Exchange is open for trading from Monday to Friday. The morning session begins with preliminary trading, which lasts from 09:15 to 9:25 am, and flows into the main morning session from 09:30 to 11:30 am. From 11:30 to 13:00 there is a lunch break at the exchange. The lunch session lasts from 13:00 to 15:00. The market is closed on Saturday, Sunday and relevant holidays, namely: New Year, Chinese New Year, Qingming, Labor Day, Autumn Festival, Duanwu Festival.

The securities included in the SSE are divided into three main categories of shares, bonds and stock indicators. Bonds traded on the SSE include Treasuries (T-bonds), corporate bonds, convertibles and corporate bonds. The SSE T-bond market is the most active in China. There are two types of shares issued on the Shanghai Stock Exchange: "A" shares and "B" shares. A-shares are securities that are priced in local currency (Chinese Yuan), while B-shares are quoted in US dollars. Initially, A-shares were available only to domestic investors, while B-shares are available both to the domestic market (since 2001) and to foreign traders. However, since reforms were implemented in December 2002, foreign investors are now allowed (with restrictions) to trade two classes of shares under a special program that was officially launched in 2003. Currently, a total of 98 foreign institutional investors have been approved for share purchase/sale transactions under the QFII program. The quota under the QFII program currently stands at US$30 billion. In the future, the program involves the merger of two classes of shares.

The following companies are listed on the Shanghai Stock Exchange: Agricultural Bank of China, Air China, Aluminum Corporation of China, Bank of Communications, Changhong, China Communications Construction, China Railway Construction, China Southern Airlines, China Unicom, Hainan Airlines, Industrial and Commercial Bank of China, SAIC Motor, Shanghai Airlines, Yanzhou Coal Mining, Qingdao (brewery).

Requirements for shares of the Shanghai Stock Exchange

According to the Securities Regulations of the People's Law of China, a limited liability company must meet the following criteria when applying to list shares: the shares must have been publicly issued after the approval of the State Council of the Securities Administration Department.

The total capital of the company must be at least 30 million yuan.

The company must have been in business for more than three years and have demonstrated profit for the last three years. This requirement also applies to former state-owned enterprises that have been re-registered as private or state-owned enterprises.

The number of shareholders in a holding that has reached a value of over 1000 Chinese yuan should not be less than 1000 people.

Publicly issued shares must be more than 25 percent of the company's total share capital.

For a company whose total share capital exceeds 400 million yuan, the ratio of publicly issued shares must be more than 15 percent.

The company must not have engaged in illegal transactions for the past three years.

Currently, China gives preference to domestic firms, but the Chinese stock market is also open to foreign investors.

The conditions for applying for share listings for closely held companies involved in high and new technologies are set out separately in a State Council document.

Experts highly appreciate the capabilities of the Shanghai Stock Exchange. The Chinese market has been developing very actively recently. New enterprises are emerging and existing ones are developing and wish to place their shares on the stock exchange.

Popularity of the Shanghai Stock Exchange in the Yandex search engine

As we can see from the graph, in the Russian-language segment of the Internet the query “Shanghai Stock Exchange” was entered on average 85 times per month.

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DEFINITION of "Shanghai Stock Exchange"

The largest stock exchange in mainland China, the Shanghai Stock Exchange is a non-profit organization governed by the China Securities Regulatory Commission (CSRC). Shares, funds and bonds are traded on an exchange, which has listing requirements, including that the company must be in business and generating profits for at least three years before joining the exchange.

UNLOADING "Shanghai Stock Exchange"

The exchange trades two main classes of shares for each listed company: shares and B shares. B shares are listed in US dollars and are generally open to foreign investment. A-shares are quoted in RMB and are only available to foreign investment through a qualified program known as QFII.

The largest stock exchange for Chinese stocks is actually the Hong Kong Exchange, which has been trading H-shares in Chinese companies for many years; these shares were also opened to foreign investment. Most of the total market capitalization of the Shanghai Stock Exchange consists of formerly state-owned companies such as large commercial banks and insurance companies. Many of these companies have only been publicly traded since 2001.

We continue to talk about the exchanges available for trading in the EXANTE terminal. Today we’ll talk about the Shanghai Stock Exchange (SSE).

Place in the world economy

SSE is consistently among the top ten exchanges in terms of total capitalization of companies (about $4T*) and is ahead of China's other largest exchanges - Hong Kong and Shenzhen - in this indicator. In Asia, it ranks second after the Tokyo Stock Exchange. In terms of the number of companies (about 1000), its position is more modest, and here it lags behind the Hong Kong Stock Exchange (about 2000). But the Shanghai Exchange is famous for its huge trading volumes - about $1.3T per month. This is a clear record in Asia and comparable to NASDAQ (second place in the world). Together, the Shanghai, Hong Kong and Shenzhen exchanges make China the second largest trading power after the United States. Their total capitalization is $9T, which is much greater than the total capitalization of the stock exchanges of any individual European country and is comparable to the capitalization of the entire European Union (after the separation of Great Britain).

The SSE mainly trades on companies from mainland China. The largest of them are traded simultaneously on the Hong Kong Stock Exchange. For example Bank of China, Industrial and Commercial Bank of China, PetroChina. There are also those that are simultaneously traded on the New York Stock Exchange. For example, the Chinese-Singaporean energy company Huaneng Power. There are a lot of companies on SSE that are known to people far from economics. For example, the automaker Great Wall Motor, the Air China airline, and the builder of the all-China high-speed railway network China Railway Construction.

SSE building in Shanghai Pudong business district

​History of the exchange and the SSE Composite Index

In contrast to the Hong Kong Stock Exchange (HKEx), the Shanghai Stock Exchange (SSE) as it stands today is young: it was founded in 1990, only 12 years after the start of market reforms in China. But the history of the stock market in Shanghai goes back to the 19th century.

Although Shanghai, unlike Hong Kong, was not a full-fledged colony, it experienced strong Western influence. The development of the stock market there largely repeated the Hong Kong scenario. The first securities trading in Shanghai, as well as in Hong Kong, was noted in 1866. Also simultaneously with Hong Kong, in 1891, the Stock Brokers Association was created in Shanghai. In 1895, the Imperial Chinese government officially allowed foreign investors to enter Shanghai, bringing its economic status even closer to that of Hong Kong. In 1904, the Brokers Association was renamed the Shanghai Stock Exchange.

Despite the many disasters that befell China in the first half of the 20th century, SSE remained operational until 1941, when Shanghai was occupied by Japan. After the war, the exchange opened only briefly from 1946 to 1949, only to be closed again by Mao Zedong's government.

Deng Xiaoping's economic reforms legalized the stock market, and in 1981, trading in securities resumed in Shanghai - albeit spontaneously at first, as in the 19th century. SSE officially reopened in 1990. And although its name remained the same, in fact, the exchange was created anew - in a completely different historical era.

Since 1991, the SSE has produced the SSE Composite stock index. Unlike Hong Kong's Hang Seng, it includes all shares listed on the exchange in its basket, not just the largest ones.

SSE Composite Index 1991-2016

Due to its smaller history, its growth is not as impressive as that of Hang Seng. And this growth is very unstable. The largest bubble (“the first Shanghai bubble”) inflated in 2006-2007 and burst in 2008. During these years, similar events occurred in other countries, but the Chinese “outdid” them many times over. However, as a result, they remained in the black: after the collapse of the bubble in 2009, the index doubled its 2005 value. The “second Shanghai bubble” took place in 2015. There was a lot of panic around it in the media, but in reality it didn’t even reach the record of the first bubble, and as a result, it again brought the stock exchange into the black.

In general, SSE is considered to be a less "market-oriented" exchange than HKEx. The state has greater influence on it, and “unsportsmanlike” manipulations are more often detected there. But there is hope that these are just “childhood diseases” of the developing market.

What should an investor pay attention to?

The full list of companies traded on the SSE can be viewed on the service Stock Screener for finance.google.com(in the first window you need to select “China”, in the second - “Shanghai Stock Exchange”). Let's see which companies are leading in certain parameters this year.

The leader in capitalization is Industrial and Commercial Bank of China, already familiar to us from Hong Kong (ticker 601398, capitalization $240B*). Behind him are two more giants, which are located in both Shanghai and Hong Kong: the oil company PetroChina (ticker 601857, capitalization $214B) and China Construction Bank (ticker 601939, capitalization $204B).

The leader in annual growth of quotes is the highly overvalued Sanjiang Shopping Club (ticker 601116, capitalization $2.3B, P/E 195, annual growth of quotes 282%). Unfortunately, other companies with good annual growth in quotes (from 100%) are also either overvalued or do not have a public P/E at all, which may indicate that they are unprofitable.

As usual, the leaders of growth not in quotes, but in profits, and over 5 years, have more sound characteristics. These are the coal mining company CCS Supply Chain Management (ticker 600180, capitalization $2.0B, P/E 28, five-year earnings growth of 241%), construction company Greattown Holdings (ticker 600094, capitalization $2.9B, P/E 18, earnings growth of 211% ) and industrial electrical equipment manufacturer Henan Pinggao Electric Company (ticker 600312, capitalization $3.3B, P/E 16, earnings growth 197%).

Formally, the most expensive share is that of the exclusive producer of the famous Chinese alcoholic drink Kweichow Moutai (ticker 600519, capitalization $66B, P/E 27), but it costs only $52. Its daily trading volume is not too large: about 32,000 shares. And the champion of the daily trading volume is the supermarket chain Yonghui Superstores (ticker 601933, capitalization $8.0B, P/E 59). 13M* of these shares are traded per day at a price of $0.84.

Conditions for connecting to the exchange

Asian markets are not as popular among online brokers as European and American markets. Moreover, SSE enjoys particularly low popularity for its place in the world ranking. But some brokers still provide access to it. Of course, we are talking about direct electronic access to the market (direct market access, DMA), and not about contracts for difference (CFDs). In particular, full access to SSE can be obtained in the EXANTE terminal. SSE opening hours are 4:30-10:00 Moscow time (9:30-15:00 All-China time).

The letter "T" in the text stands for trillions, "B" for billions, and "M" for millions; The "$" sign represents the US dollar (not to be confused with the Hong Kong dollar).

The Shanghai Stock Exchange (SSE, 上海证券交易所) is one of two stock exchanges in mainland China. The exchange is one of the 5 largest exchanges in the world with a capitalization of $3.5 trillion and ranks 2nd in Asia. It is a non-profit organization directly administered by the China Securities Commission. The Chinese authorities strictly control transactions carried out with foreign capital, so the exchange still does not have full access for foreign investors.

The main instruments on the Shanghai Stock Exchange are stocks, stock indicators and bonds. The SSE trades treasury, corporate and convertible bonds. Shares, in turn, are divided into two categories A and B, the former are valued in yuan, the latter in US dollars.

Functions of SSE: ensuring the operation of the trading platform and conditions for trading securities, developing business rules, accepting and organizing listings, organizing and monitoring transactions with securities, publishing information about the market.

At the end of 2016, there were 1,182 companies listed on the SSE with a total market capitalization of over RMB 28.5 trillion.
The total turnover in 2016 was 50.2 trillion yuan, and the average daily turnover reached 205.6 billion yuan.
Bond market: 8077 bonds totaling 6.2 trillion yuan, annual turnover amounted to 224.7 trillion yuan.
Derivatives market: 137 funds with an annual turnover of more than 8.9 trillion yuan.

The Shanghai Futures Exchange is one of the world's leading commodity exchanges in terms of trading volume in natural rubber and copper futures contracts. And the Shanghai Gold Exchange is China's largest exchange for trading precious metals.

Trading on the Shanghai site is held five days a week, from Monday to Friday. The trading session is carried out in two stages, the morning one lasts from 9:30 to 11:30, followed by an hour and a half lunch break. The second part of the session lasts from 13:00 to 15:00, preparation of trades is carried out from 9:15 to 9:25. The exchange is closed during national holidays.

Story

After the signing of the first Opium War and the signing of the Treaty of Nanjing (1842), the first settlements for foreigners began to form in Shanghai. Through them China traded with the outside world. The securities market began to emerge in the 1860s, and the first registrar appeared in 1866. The exchange as a trading platform appeared during the boom in mining stocks in 1891. An application for official registration was submitted in 1904. During World War II and the Japanese occupation, all operations on the exchange were suspended. Work was restored in 1946, but only for three years. After the establishment of the Communist Party's power, the site was closed again.

The exchange was revived in 1990. Then, one after another, the China Foreign Exchange Trade Center (1994), the Shanghai Futures Exchange (1999), the China Gold and Foreign Exchange Exchange (2002), the headquarters of the second central bank (2005) and the China Financial Exchange were established in Shanghai. Futures Exchange (2006). After the reform of the stock market in 2005, the capitalization of the stock market has increased significantly. Now the Shanghai Stock Exchange is a modern platform respected by investors.