Investing in China 101 Part 2: Overview of Chinese Stock Exchanges

Introduction

As mentioned in the first part of the Investing in China 101 series, there are currently three main stock exchanges in China: Shanghai Stock Exchange, Shenzhen Stock Exchange, and Hong Kong Stock Exchange. This article aims to provide an overview of each of the Chinese Stock Exchanges including their main characteristics and key data.

From left to right: Main buildings of Shanghai, Shenzhen and Hong Kong Stock Exchange

Shanghai Stock Exchange

Shanghai Stock Exchange is the largest stock exchange by market capitalization of the three main stock exchanges in China with a total market capitalization of CNY 42.7 trillion (USD 6.2 trillion). A total of 1,707 companies are listed in Shanghai and the exchange is dominated by former State-Owned Enterprises in traditional industries such as Utilities, Banking, and Insurance. As a result, Shanghai Stock Exchange has the largest average market capitalization per company of the three exchanges standing at USD 3.7 billion.

The main index is the Shanghai Composite Index which tracks all stocks traded on the Shanghai Stock Exchange. Notable companies listed in Shanghai include Sinopec (the world's largest oil refining, gas, and petrochemical conglomerate), Kweichow Moutai (the world’s most valuable liquor company), and Industrial and Commercial Bank of China (the world’s largest bank by assets).

Shenzhen Stock Exchange

Shenzhen Stock Exchange is ranked as the third largest stock exchange by market capitalization of the three main stock exchanges in China with a total market capitalization of CNY 32.1 trillion (USD 4.7 trillion). A total of 2,279 companies are listed in Shenzhen and the exchange is primarily focused on companies in emerging and fast-growing industries such as semiconductors, internet, and software. As a result, Shenzhen Stock Exchange has long been considered a growth market. It has the smallest average market capitalization per company (USD 2.1 billion), the highest average P/E ratio (32.9x), and the largest average daily turnover of the three exchanges (USD 42.7 billion).

The main index is the SZSE Composite Index which tracks 500 stocks traded on the Shenzhen Stock Exchange. Notable companies listed in Shenzhen include BYD (the second largest Electric Vehicle manufacturer in the world behind Tesla), Midea (Electrical appliances), and ZTE (Telecommunications).

Hong Kong Stock Exchange

Hong Kong Stock Exchange is the second largest stock exchange by market capitalization of the three main stock exchanges in China with a total market capitalization of CNY 35.9 trillion (USD 5.2 trillion). A total of 2,131 companies are listed in Hong Kong and the exchange is dominated by companies headquartered in Mainland China already listed in either Shanghai or Shenzhen as a way of accessing capital outside of Mainland China.

The main index is the Hang Seng Index which tracks the 50 largest companies on the Hong Kong Stock Exchange. Notable companies listed in Hong Kong include Alibaba (the world's largest retailer and e-commerce company), Tencent (one of the world’s largest social media and gaming companies), and MTR (global operator of rapid transit systems including Stockholm Metro).

Summary

The three main stock exchanges in China all rank as one of the 10 largest stock exchanges in the world by market capitalization with Shanghai Stock Exchange as #4, Hong Kong as #5 and Shenzhen Stock Exchange as #8. The Hong Kong Stock Exchange is fully accessible to non-Chinese investors as opposed to the two Mainland Exchanges. For the two Mainland Exchanges the CSI 300 index is commonly used which tracks the top 300 stocks traded on the Shanghai Stock Exchange and Shenzhen Stock Exchange.

Please see below for a table summarizing the key data for the three main Stock Exchanges in China used for this article:

Note: Key data was compiled 27 August 2020 by Nordic Asia Research Team