The trading floor of the Shanghai Stock Exchange in Shanghai Photo: CFP

The Shanghai Stock Exchange revised way of compilation of the Shanghai Composite Index, effective from Wednesday, a move market analysts say will make the benchmark better reflect listed companies' business performance and help lay the foundation for a long-term bull run.

A statement from the Shanghai Stock Exchange Tuesday said that the new index will kick out companies that have been subject to risk warnings. The change also prolonged the time for new company inclusions to the index to one year. 

Also, newly listed companies whose valuations climb to the top 10 will be included in the index within three months after they went public. In the past, new lists were included in the index just 11 trading days after they were listed.

Besides, stocks listed at the Science and Technology Board, or STAR, will be included in the sample space of the Shanghai Composite Index, the statement read.

By the close Wednesday, the Shanghai Composite Index edged up by 0.37 percent to 3,333.16 points. The Shenzhen Component Index rose 0.89 percent. 

Amending how the Shanghai Composite Index is compiled could make the index more reflective of China's capital market by excluding stocks under risk alert and introducing more technology companies, market analysts and experts said. 

Yu Wenbing, assistant general manager of biopharmaceutical company Junshi Biosciences, which is a listed company on STAR bourse, said that including tech companies into the Shanghai Composite Index, as well as other reforms, will help increase liquidity of the market. 

It will increase financial support to listed companies, whose business boom will help boost the capital market in a virtuous cycle. "Without direct funding support from the capital market, our company could not have pushed coronavirus-related research so quickly," he said. 

According to him, the Shanghai Composite Index is often considered the barometer of China's capital market, but the index is old-fashioned and cannot objectively represent the general situation of China's massive economy. 

"The revision will enhance the index's reputation for trying more methods to truly reflect listed companies' performance and avoid misleading market investors, individual investors in particular," Yu told the Global Times.

Some experts noted that the revised compilation method will help prop up the mainland stock markets. 

Yang Delong, chief economist at the Shenzhen-based First Seafront Fund Management Corp, told the Global Times that changes to the Shanghai Composite Index are not very radical, so the Shanghai market will be kept stable. 

But in the long run, more and more new economy companies, whether they are listed on the STAR market or those companies returning from New York to the A-share market, will be included in the weighing of Shanghai Composite Index and will push the index up, steadily. 

"The next decade will be golden years for the A-share markets, and the Shanghai Composite Index will hopefully go up in a 'slow bull' trend," Yang said. 

A stock investor based in Beijing told the Global Times Wednesday that the reform could shore up the confidence of mainland and overseas investors in China's increasingly complicated financial markets. 

"Although currently the Shanghai Composite Index isn't totally consistent with the performance of individual stocks, I believe the reforms will help the index have a bull run,"  she said.