Shanghai bourse to revise A-share benchmark index
Published: Jun 19, 2020 10:53 PM

US stock market xinhua

The Shanghai Stock Exchange announced Friday it would revise the benchmark Shanghai Composite Index, in a major move to align China's A-share market with its global counterparts. 

Drawing upon international index revisions and based on the domestic market, the revision on July 22 includes the culling of special treatment (ST) stocks, an extension of new shares into the index, and stocks traded on the STAR Market in Shanghai, enabling the benchmark to reflect the overall performance of Shanghai-listed firms in a more objective manner, the stock exchange said in a statement on its website. 

By the end of May, the benchmark had included 85 ST stocks, the bourse said.

The revision to edge out ST shares and include stocks on the STAR Market will allow the benchmark to better reflect China's technology and innovation-oriented firms, Wu Jinduo, the head of fixed income at the research institute of Great Wall Securities, told the Global Times on Friday.

It has long been a concern that some traditional sector shares such as PetroChina were offered at a high price before trending lower continuously, thereby putting a drag on the Shanghai benchmark. Meanwhile, emerging technology majors have largely traded in markets other than the A-share market, rendering the Chinese mainland equity market a poor indicator of the Chinese economy, Wu reckoned. 

The Shanghai index was launched in 1991 as the first index in the A-share market, with its core compilation methods applied until now. There have been rising calls for the index compilation to be improved in the recent years, especially during this year's two sessions in May.

Multiple seminars on index compilation revision have been held, and an index compilation expert advisory mechanism has been created, seeking options and suggestions from fund firms, insurance and asset management firms, domestic and overseas index firms. All these efforts have resulted in the revision plans for the benchmark index compilation, the stock exchange said in a separate announcement.

The benchmark closed 0.96 percent higher at 2,967.63 points on Friday, the same level where it was a decade ago. The index was down 2.7 percent for the year. By comparison, the tech-heavy ChiNext index gained 2.36 percent to 2,319.45 points, hitting a multi-year high. By the close of trading on Friday, the ChiNext index soared 28.99 percent year-to-date. 

Mulling a more viable alternative to the benchmark Shanghai Composite Index that has remained at the same level from a decade ago could preclude a genuine bull run, said an investment banking analyst with a Chinese joint-stock bank on condition of anonymity.

However, Wu said the revision is not necessarily tantamount to the beginning of a bull market for A-shares, noting that the healthy development of the equity market requires firms with sound fundamentals, as well as efforts not to intervene in market operations, and be zero tolerant toward law and regulation violations.