Introduction to Shenzhen Stock Exchange (Series 1) December 5, 2016
Phillip Securities, Global Market department is pleased to present our emails series on the Shenzhen Stock Exchange. Since the Shenzhen-Hong Kong Stock Connect has been approved by the China government, this email series can help arm you with relevant market information, so that you will be prepared to invest in this market when it is officially launched.
The Shenzhen Stock Exchange (SZSE; Chinese: 深圳证券交易所) was established on 1st December, 1990 and based in the Futian district of Shenzhen, Guangdong. It operates from 9:00 AM to 3:00 PM on weekdays and there is no trading on holidays. With a market capitalization of its listed companies around US$3.16 trillion in 2016, it is the 7th largest stock exchange in the world, and 3rd largest in Asia. Besides, the Shenzhen Stock Exchange is the largest in China by trading volume, with average daily turnover of about $50 billion in 2016.
Source: Shenzhen Stock Exchange
In May 2004, the Shenzhen Stock Exchange started the SME Board (中小企业板) and launched the ChiNext (创业板) board, a NASDAQ-type exchange for high-growth and high-tech start-ups, on October 23, 2009. Because the government is seeking to create a more efficient capital market system that would steer investment capital to small and midsize private enterprises, this would help to reshape the economy through technology and innovation, rather than just relying on low-priced exports.
Source: Shenzhen Stock Exchange
Source: Shenzhen Stock Exchange
Chinese biggest state-owned enterprises, such as banks and energy firms are the major components of the Shanghai stock market, while Shenzhen market is composed of companies from the private sectors.
As of Jun 2016, 1777 companies are listed in Shenzhen Stock Exchange. And the Shenzhen market provides more opportunities in liquid small-cap stocks, high-growth sectors and non-state-owned enterprises. While Shenzhen stocks as a whole have shown significantly stronger earnings growth compared with their Shanghai counterparts in recent years, they have also commanded much higher valuations due to local investors’ preferences for growth and small caps.
Nearly a fifth of Shenzhen’s stocks are tech companies, a much bigger proportion than that in Shanghai, where tech stocks make up just 4% of the market.
Shenzhen-Hong Kong Stock Connect was approved on 16 August 2016. What the stock connect provides most is greater access for overseas investors to Chinese private enterprises and innovative companies, which comprise over 70% of the Shenzhen market (such as healthcare, materials, consumer and IT companies), leading to more balanced China exposure. The launch of the Shenzhen-Hong Kong link marks a concrete step toward making Chinese capital markets more law-based, market-oriented and globalized.
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About the author
Shengyu Xu
Senior Dealer
Global Markets Department
Xu Shengyu graduated from the National University of Singapore with a master degree in Chemistry and joined Phillip Securities since 2011. He is currently a Senior Dealer in the Global Markets department. Shengyu is proficient in stock trading using both technical and fundamental analysis and frequently conducts educational seminars such as Market Outlooks, “Why Invest Globally” and trading platform introductions to enable his clients to make informed decisions in their investment. Shengyu specialises in China and Hong Kong markets.
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