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SSE: exchanges in EXANTE terminal
28
Apr
SSE: exchanges in EXANTE terminal

 

Today, we are going to write about the Shanghai Stock Exchange, or the SSE. The letter "T" in the text stands for trillions, "B" stands for billions, and "M" — for millions. The $ sign stands for US dollars only.

The SSE’s place in the global economy

The SSE is firmly within the world’s top ten by the total market capitalization of its listed companies (around $4T) and is ahead of China’s other major stock exchanges, such as the Hong Kong and Shenzhen Stock Exchanges, by total market cap. In fact, it holds the second place in Asia overall, after the Tokyo Stock Exchange. It holds a more modest place by the number of listed companies (around 1,000), and it is behind the Hong Kong Stock Exchange in this respect (around 2,000). Together, the Shanghai, Hong Kong, and Shenzhen Stock Exchanges make China the world’s second financial power, after the USA. Their total market cap — $9T — is much greater than the total market cap of any European country and is comparable to the European Union’s total market cap (after the UK’s withdrawal).

The companies listed on the SSE typically come from mainland China. The largest companies among these also trade on the Hong Kong Stock Exchange. These include the Bank of China, the Industrial and Commercial Bank of China, and PetroChina. There are also some companies that are also listed on the New York Stock Exchange, such as Huaneng Power, a Chinese-Singaporean power generation company. The SSE also lists many companies that are well-known even to people who do not specialize in economics, such as Great Wall Motor, Air China, and China Railway Construction, the company that constructed China Railway High-speed.

The SSE’s building in Pudong, Shanghai’s business district

The SSE’s history and the SSE Composite Index

In contrast with the Hong Kong Stock Exchange, or HKEx, the SSE as we currently know it is a young exchange, as it was founded in 1990 — 12 years after the market reforms started in China. However, the history of Shanghai’s stock market dates back to the 19th century.

Unlike Hong Kong, Shanghai has never been a true colony, but it nonetheless felt a strong Western influence. The stock market’s development in Shanghai mirrored that in Hong Kong in many ways. Like Hong Kong, Shanghai started trading securities in 1866. Then, in 1891, in the same year as Hong Kong, Shanghai created its Association of Stockbrokers. In 1895, the imperial Chinese government officially allowed foreign investors to trade in Shanghai, making Shanghai’s economic status even closer to that of Hong Kong. In 1904, the city’s Association of Stockbrokers was renamed to the Shanghai Stock Exchange.

Despite many crises that China had to endure in the 20th century, the SSE functioned right until 1941, when Shanghai was occupied by Japan. After the war, the exchange only reopened for a short period from 1946 to 1949, to be closed again by Mao Zedong’s government.

Deng Xiaoping’s economic reforms legalized the stock market, and securities trade resumed in Shanghai in 1981 — even if, like in the 19th century, it was chaotic at first. The SSE did not reopen officially until 1990. Although its name remained the same as before, it was essentially a brand new exchange, created in a different historical period.

Starting with 1991, the SSE calculates the SSE Composite Index. Unlike HKEx’s Hang Seng Index, it includes all shares on the exchange, not just those of its largest companies.

The SSE Composite Index in 1991-2016

Due to the index’s shorter history, its growth does not seem as impressive as that of Hang Seng, not to mention that the growth has been rather unstable. The biggest bubble (the first Shanghai bubble) grew in 2006-2007 and burst in 2008. During those years, similar events had been happening in other countries, but the Chinese surpassed them by many times. However, the index still ended up having grown since before the bubble, as in 2009, when the bubble burst, its value was twice that of 2005. The second Shanghai bubble occurred in 2015. There had been a lot of panic over it in the media, but it didn’t even manage to reach the record of the first bubble, and afterwards the index still kept growing.

Overall, the SSE is considered less of a «free market» exchange than HKEx. The government has a stronger influence over it, and schemes that disrupt fair competition are more common here. However, there is still hope that these are merely signs of a young market.

What an investor should keep in mind

The full list of companies listed on the SSE can be seen through the Stock Screener service at finance.google.com (pick "China" in the first box, then "Shanghai Stock Exchange" in the second). Let us see which companies hold the first place according to various criteria.

The first place by market cap is held by the Industrial and Commercial Bank of China that we have already seen on HKEx (ticker symbol 601398, market cap $240B). It is followed by two other giants that are present both in Shanghai and in Hong Kong: the PetroChina oil company (ticker symbol 601857, market cap $214B) and the China Construction Bank (ticker symbol 601939, market cap $204B).

The first place by 52-week price increase is held by the greatly overrated Sanjiang Shopping Club (ticker symbol 601116, market cap $2,3B, P/E 195, 52-week price increase 282%). Unfortunately, other companies with a good 52-week price increase (over 100%) are also either overrated or don’t even have a public P/E ratio, which may point to them being unprofitable.

As usual, the more reasonable figures are shown by companies that hold the first place in 5-year earnings increase rather than 52-week price increase. They are the CCS Supply Chain Management coal mining company (ticker symbol 600180; market cap $2,0B; P/E 28; 5-year earnings increase 241%), the Greattown Holdings construction company (ticker symbol 600094; market cap $2,9B; P/E 18; 5-year earnings increase 211%), and Henan Pinggao Electric Company, an industrial electrical equipment producer (ticker symbol 600312; market cap $3,3B; P/E 16; 5-year earnings increase 197%).

Technically the most expensive shares traded on the SSE belong to the exclusive producer of the famous Chinese alcoholic beverage Kweichow Moutai (ticker symbol 600519; market cap $66B; P/E 27), but they cost only $52 each. The daily trading volume for these shares is not particularly high — it is around 32,000 shares. The first place by daily trading volume is the Yonghui Superstores supermarket chain (ticker symbol 601933; market cap $8,0B; P/E 59). 13M of these shares are sold daily, costing $0,84 each.

Access requirements

Asian markets are not as popular with online brokers as the European or American ones. The SSE is particularly unpopular, especially given its place in the global rating. However, some brokers still grant access to it. Obviously, the broker must provide direct market access, or DMA, to the exchange, rather than simply offering contracts for difference, or CFDs. EXANTE is one of the brokers that give DMA to the SSE. Our commission for this market is 0,25% of the amount being traded, while minimum commissions are not charged at all.

The SSE’s business hours are 4:30 to 10:00 Moscow time (9:30 to 15:00 China Standard Time). 

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