Investor’s guide to the Chinese stock market (2022 update)
The Chinese stock market has been an extraordinary wealth generator over the long term for both domestic Chinese investors, and also international investors. According to Refinitiv data, foreign investors held over US$600 billion in Chinese stocks listed on the mainland or in Hong Kong.
A seperate Asia Markets guide, provides a great overview of how investors from the US and other regions outside of China can invest in Chinese stocks.
This guide provides everything you need to know about the structure of the domestic Chinese stock market and some historical context for investors to consider.
The mainland Chinese stock exchanges
The Shanghai Stock Exchange (SSE)
Shanghai is China’s main financial hub, so it’s no surprise the city is home to China’s largest stock exchange. The Shanghai Stock Exchange has a total market cap around around US$6.8 trillion, with 2128 listed securities (as at April 2022). The exchange has a large weighting towards the Financial and Real Estate sectors, along with Industrials.
It is Asia’s largest stock market and third-largest stock market in the world, by market cap.
Here’s a list of some of the most well-known and largest Chinese stocks you’ll will find on the Shanghai Stock Exchange.
|Kweichow Moutai||Baijiu production|
|Ping An Insurance||Insurance/financial services|
|Industrial and Commercial Bank of China||Financial services|
|Agricultural Bank of China||Financial services|
|Bank of China||Financial services|
|China Life Insurance Company||Insurance/financial services|
|PetroChina||Oil and gas|
|Sinopec Shanghai Petrochemical||Oil and gas|
|SAIC Motor Corporation||Auto manufacturing|
|Yili Group||Dairy producer|
The exchange launched in December, 1990, and is operated by the China Securities Regulatory Commission.
Along with stocks, bonds, funds and derivatives can also be traded on the exchange.
The SSE STAR Market
When looking at the Shanghai Stock Exchange, investors should also note the exchange has two seperate boards. There is what is referred to as the “main board” and also the SSE STAR Market.
The SSE STAR Market (officially known as the Science and Technology Innovation Board) was launched in June, 2019. It is often described as China’s NASDAQ-equivalent due to it targeting listings of growth-style tech companies. On the SSE STAR Market, investors will find companies predominately from the following industries:
- New Generation IT
- High-end Equipment
- New Materials
- New Energy
- Energy Conservation & Environmental Protection
The SSE STAR Market, affords innovative companies from those sectors less stringent requirements for listing, compared to the Shanghai Stock Exchange main board.
The total market cap of the SSE STAR Market is just over US$640 billion, with 416 listed securities (as at April 2022).
An interesting feature of the board is that there are fewer Chinese state-owned enterprises than any other Chinese exchange.
Around 80% of companies listed are privately owned (ie. not state-owned Chinese enterprises). On the Shanghai main board around 67% of companies are privately owned.
The next stock exchange discussed has an even lower percentage of non-state-owned enterprises.
The Shenzhen Stock Exchange (SHE)
The Shenzhen Stock Exchange is China’s second-largest stock exchange. It has a total market cap of just over US$3 trillion, with 1,493 listed companies (as at April 2022). This exchange has a strong weighting to the manufacturing sector, with a large number of Chinese manufacturing giants listed.
As discussed, the Shenzhen Stock Exchange has a lower proportion on non-state-owned enterprises than both the main board of the Shanghai Stock Exchange and the STAR Market.
Close to 50% of companies listed in Shenzhen are state-owned enterprises.
However, this shouldn’t deter investors. There are a number of well-know and powerful businesses listed on the exchange. Here’s a list of some of the top China stocks listed on the Shenzhen Stock Exchange.
|Contemporary Amperex Technology||Battery manufacturing|
|Wuliangye Yibin||Baijiu production|
|BYD Company||Auto and electronics manufacturing|
|Midea Group||Electrical appliance manufacturing|
|Hangzhou Hikvision Digital Technology||Video surveillance manufacturing|
|Luzhou Laojiao||Baijiu production|
|China Vanke||Property development|
|Shenzhen Mindray Bio-Medical Electronics||Medical instruments manufacturing|
|Weichai Power||Engine manufacturing|
Like the the Shanghai Stock Exchange, the Shenzhen Stock Exchange was also launched in December, 1990. It is a self-regulated legal entity that operates under the supervision of China Securities Regulatory Commission.
Along with stocks, funds, bonds, options and asset-back securities are also listed on the exchange.
Similar to the SSE STAR Market, ChiNext is a seperate board of the Shenzhen Stock Exchange which has a focus on emerging industries. It was launched in 2009 and now has a total market cap of over US$1.5 trillion and 1140 listed companies (as at April 2022).
The board provides a more streamlined avenue for the IPO’s of technology-focussed companies and startups, relative to the Shanghai Stock Exchange’s main board.
As you may have determined, there are many parallels between the STAR Marker and ChiNext. The two NASDAQ-like boards are often seen as being in competition for the listings of the best emerging tech companies in China.
When it comes to the type of companies listed on the two competing boards, ChiNext is slightly skewed towards growth companies with smaller market caps, while the STAR Market has a skew towards listings of companies with more advanced technology and further into their company life cycle.
The Beijing Stock Exchange (BSE)
The Beijing Stock Exchange is the third exchange on China’s Mainland, and the newest addition to the Chinese stock market landscape.
It was launched in 2021, following a speech by Xi Jinping in which he expressed the Government’s desire to support the development of small and medium-sized enterprises (SMEs) focussed on emerging and high-tech industries.
The exchange now provides a platform for SMEs to access capital directly from the equity market, thus the types of companies listed are early in their development stage and smaller in size than what investors would find on the Shanghai and Shenzhen Exchanges.
It is difficult for direct foreign investors to access the Beijing stock exchange directly. However because of its role as a launchpad for Chinese SMEs to access capital, after at least one year of full compliance as a listed company on the BSE, companies have the ability to transfer to the SSE Star Market or ChiNext, where they may become more accessible to foreign investors.
To list on the BSE, SMEs must be focussed on the development of advanced technology.
The Stock Exchange of Hong Kong
The Stock Exchange of Hong Kong is seen a very attractive avenue for Chinese companies to attract capital from foreign investors. This is because the exchange is more easily accessible to foreign investors than the Chinese Mainland exchanges (although red tape surrounding foreign participation is increasing being removed).
Many of the most famous Chinese companies are listed on the The Stock Exchange of Hong Kong, including the following.
|Hong Kong Exchanges and Clearing||Financial services|
|Longfor Properties||Property Development|
|Li Ning||Sports apparel and equipment manufacturing|
|Techtronic Industries||Power tools manufacturing|
You can see that investors can access a diverse range of major Chinese companies via the Hong Kong exchange.
There are also many companies with dual listings on both a Mainland exchange and in Hong Kong. When this happens, the different share classes are referred to as A-Shares and H-Shares. A seperate Asia Markets guide examines Chinese H-Shares vs Chinese A-Shares.
Monitoring the Chinese stock market from abroad
Now that you have an understanding of the main stock exchanges relevant to the Chinese stock market, here’s an overview of the indexes you can follow to best monitor the overall performance. You can google any of these to view performance.
Shanghai Stock Exchange Indexes
- SSE Composite Index – tracks the performance of all stocks traded on the Shanghai Stock Exchange.
- SSE 50 Index – tracks the top 50 companies by market cap on the Shanghai Stock Exchange.
- SSE STAR 50 Index – tracks the top 50 companies by market cap listed on the SEE STAR Market.
Shenzhen Stock Exchange Indexes
- SZSE Composite Index – tracks the performance of all stocks traded on the Shenzhen Stock Exchange.
- SZSE Component Index – tracks the performance of the 500 largest stocks by market cap traded on the Shenzhen Stock Exchange.
- ChiNext Index – tracks the performance of the 100 largest stocks by market cap on ChiNext.
Hong Kong Stock Exchange Indexes
- Hang Seng Index – tracks the performance of the 50 largest companies listed on the Stock Exchange of Hong Kong.
A final important index
- CSI 300 Index – a useful index to follow as it tracks the performance of the largest 300 stocks traded on both the Shanghai and Shenzhen exchanges. It is viewed by many as the Chinese equivalent to the S&P 500.
For a broader overview of the major stock indexes in Asia, see this Asia Markets guide.
Historic performance overview of the Chinese stock market
Broadly speaking, in 2022 Chinese stocks trade at large discounts to stocks listed in the United States. However, the valuation gulf hasn’t always existed.
The Chinese stock market has seen some incredible bull markets (and valuation bubbles) in recent history.
During this period the Shanghai Composite hit an all-time-high of 6,092, a record still yet to be surpassed. The index rallied more than 350% in 12 months. It followed Government reforms that made it easier to invest and came as the Chinese economy was expanding rapidly. However, the bull market quickly entered bubble territory and billions of dollars were wiped from the market in the proceeding years as the Global Financial Crisis hit.
The 2015 bull market was stunning rally that began late in 2014, when the Chinese Central Bank embarked on a rate cut cycle.
Between June 2014 and June 2015, the CSI 300 Index (which tracks stocks on the Shanghai and Shenzhen exchanges) surged by almost 150%.
Chinese stocks surged in the wake of COVID-19 as the country looked to overcome the virus and the economy appeared to emerge in good shape.
Between February 2020 and February 2021, the CSI 300 Index shot up by around 60%. The index hit an all-time-of of 5807 in February 2021, before a bear market hit as concerns about a slowing economic and increased regulation of large technology companies emerged.
A long term perspective on the Chinese stock market
While there have been periods of great volatility, the long-term performance of the Chinese stock market has been strong. It has risen in line with the remarkable rise of China’s economy over the past three decades. Of note, many domestic-focussed companies have seen rapid rises as incomes in China have consistently risen.
Currently, China is the world’s second largest economy, with some experts predicting it may overtake the U.S. in the years ahead. So it’s no surprise many investors believe the Chinese stock market can’t be ignored.
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