Thomas Greb, a Shanghai-based portfolio manager at Olivar & Greb Capital Management, has extensive experience in professional investment and wealth management consulting for individuals and families. When time permits, he shares his insight in this column for That’s to highlight key sectors, market movements, or trade ideas to consider for your portfolio.
For this article, we delve into the stock exchanges in Shanghai, Shenzhen and Hong Kong. We’ll give a brief background and explain what gets traded in each exchange and then give advice on how to access them.
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Shanghai Stock Exchange
The Shanghai Stock Exchange (SSE) is the Chinese mainland’s largest exchange. It’s run by the China Securities Regulatory Commission (CSRC) and focuses on trading stocks, funds and bonds. The SSE currently ranks 5th, in market capitalization, behind the NYSE, Nasdaq, Tokyo Stock Exchange and London Stock Exchange. Most of its market cap consists of formerly state-run companies, such as major banks and insurance companies. The requirements to be listed on the exchange are that the company must gain approval from the CSRC, total share capital must be more than RMB50 million, at least 25% of total issued shares must be publicly offered (unless total share capital is more than 400 million RMB, then it is 10%), and lastly, the company must have made profits over the last three consecutive years.
The Shanghai Exchange consists of the...
Main Board
Listed in both mainland exchanges, it has the highest requirements for the issuer in terms of profitability, market cap, etc. – which is why most of the listed companies are large mature enterprises, with a large capital scale and stable profitability.
STAR Market
Seen as the Chinese version of Nasdaq, the STAR Market was established to meet the listing of scientific and technological innovation enterprises in China.
Shenzhen Stock Exchange
Opened only 30 years ago, the world’s 8th largest stock exchange focuses primarily on overseeing securities trading, developing operational rules and providing the facilities for securities trading. While self-regulated, it is still overseen by the CSRC. Individual investors make up the majority of investors, and the exchange is home to mostly smaller and emerging-sector companies, many being subsidiaries of firms in which the Chinese government maintains a high level of control. A-Shares, B-Shares, mutual funds, indices, fixed income products and derivatives are all traded on the exchange. It consists of the three boards, including the Main Board and the...
SME Board
The Small and Medium Enterprises (SME) Board, typically hosts companies that have high growth and high profitability, but don’t meet the requirements of the main board.
ChiNext Market
Concentrated on Sci-Tech Innovation SMEs that aren’t listed on the main board yet; allows them to gain access to financing channels and growing space.
The Stock Exchange of Hong Kong Limited
Strategically placed within Hong Kong and London, this exchange focuses on three main markets: The Stock Exchange of Hong Kong, the Hong Kong Futures Exchange and the London Metal Exchange. The Hong Kong SAR Government is the largest shareholder in HKEX, and has the right to appoint six of the 13 directors of the board. While the mainland exchanges are mostly dominated by retail investors, the HKEX leans heavily in the favor of institutions. Stocks, bonds, warrants, REITs, mutual funds, ETFs and equity-linked instruments are traded on the exchange. In 2014, the ‘Stock Connect’ was introduced, allowing Chinese mainland investors to buy Hong Kong-listed companies and for foreigners to purchase A-Shares listed on the mainland.
Indices
The Shanghai Stock Exchange Composite Index (SHCOMP) tracks the Shanghai exchange, the Shenzhen Index (SZCOMP) tracks the stock prices of all A and B shares on the Shenzhen exchange and the Hang Seng Index (HIS) tracks the Hong Kong stock exchange.
How to Access the Exchanges
For investors looking to trade through these exchanges, there are a few overseas brokerages that allow access. Foreign investors can open accounts with Interactive Brokers and Saxo, among others. Through the Stock Connect program, investors can buy and sell some (but not all) of the stocks on these exchanges. It is important to conduct due diligence when investing in stocks in a foreign market, as reporting standards vary across countries.
Please feel free to reach out to thomas.greb@olivar-greb.com if you are interested in learning more about how to access these exchanges while living abroad.
Special thanks to Samuel Hovey for due diligence and fact-finding in this article.
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[Cover image via Sohu]
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