"A Shares First Index" Shanghai Index releases "big move"

The Shanghai stock index has overhauled for the first time in nearly 30 years. Is the "digital bull market" coming?

  Text / Qiu Guangyu

  Published on 2020.6.29 total issue 953 "China News Weekly"

  "A-share first index" Shanghai index released "big move". The Shanghai Stock Exchange (Shanghai Stock Exchange) released news on June 19th and decided to revise the preparation plan for the Shanghai Composite Index (Shanghai Index) from July 22, 2020. This is also the first major revision of the Shanghai Index since its release in 1991.

  According to the response of the Shanghai Stock Exchange, this revision adopts the "three major paths", and there are reasons behind it: excluding bad ST shares, which has less impact on the index, which is beneficial to the survival of the fittest; extending the time for new shares to be counted is conducive to excluding those that were previously speculated Volatility guides long-term rational investment; the inclusion of science and technology board listed securities is conducive to enhancing the representativeness of the index and optimizing the index structure dominated by traditional companies.

  With the development of the economic situation, the 29-year-old Shanghai Index has been criticized for its poor performance and does not match the growth rate of GDP. The revision of its preparation plan has also become a hot topic in the "two sessions" this year. According to the China Fund News, in the past 10 years, the Shanghai index has risen by only 18.08%, far behind the Shanghai and Shenzhen 300 index and the Shanghai 50 index. From the perspective of industry structure, the Shanghai Index also has the disadvantage of a high proportion of traditional companies in finance and industry.

  Although the scientific reform of the Shanghai Stock Exchange is a major good, some experts and stockholders will still doubt whether this is a short-term "fake rise". After the reform, it will not reflect the true trend of the economy. Is it still "distorted"?

  In fact, there are indeed important problems to be solved behind the "overhaul". This problem is the weighting method. The calculation method of the Shanghai Index is weighted by total equity. The disadvantage of this method is that the stock price changes of huge market value companies (such as PetroChina) will have a huge impact on the entire index. In contrast to the international index, the S&P 500 and others have changed to a more scientific calculation method as early as 2005, and the Shanghai Index's speed of action does seem to be a bit slow.

  Li Xunlei, chief economist of Zhongtai Securities, published an article on May 25 this year and talked about the four major improvement paths of the Shanghai Stock Exchange. The three major paths mentioned in the index have been implemented in this revision. For the only weighted reform that was not implemented, he predicted at the time that because the Shanghai Stock Exchange had no experience with such changes, historical consistency and comparability, and investors’ usage habits still need to be considered, so it may take some time for observation and evaluation.

  This reform is not so much an "overhaul" as a moderate repair. It does improve the existing historical problems, but it has a limited effect. However, the positive effect is also predictable. The Shanghai Index after the rule modification should have a predictable rise in the early period. Some people even think that the future "bull market can be expected" and "3000 points of curse will be broken". Although it is a bit exaggerated, if the positive The number really appears and will attract many retail investors to enter the market.

  Of course, the reform of the compilation method is, after all, a "statistical problem." What really boosts the Chinese stock market is the economic development and the outstanding performance of more companies. From this perspective, the key change that is more worthy of our expectations is the inclusion of securities listed on the Science and Technology Board. This action not only improves the representativeness of the Shanghai Index, optimizes the index structure that has become outdated, but may also "miss" the past few years. Shareholders of BAT enjoy the dividends of high-tech and network economy, which also represents the direction of future economic development.

  "China News Weekly" No. 23, 2020

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