Shanghai Stock Exchange

The Shanghai Stock Exchange (SSE) is the largest in mainland China. The market trades stocks, funds, bonds and derivatives from a large number of listed companies. This page will break down how the SSE works, along with its various indices, rules and requirements. It will also detail how you can start trading on the SSE, with tips to help you get going. A list of the top brokers for trading on the Shanghai Stock Exchange is provided below.

What Is The Shanghai Stock Exchange?

The Shanghai Stock Exchange (SSE) is a stock exchange based in the city of Shanghai, China. It is the largest stock exchange in mainland China and the 4th largest in the world, with a market capitalisation of USD 6.98 trillion in 2020 and a daily trading volume of around USD 17.86 trillion. The SSE is a non-profit organisation that is managed and administered by the China Securities Regulatory Commission (CSRC).

The Shanghai Stock Exchange Composite (also known as the SSE Composite or Shanghai Composite) Index is the most common indicator used to reflect the performance of the SSE market. This is an index of all the stocks that are traded on the Shanghai Stock Exchange, of which there were over 1,800 in January 2021.Shanghai Stock Exchange index today

As of Q1 2021, the P/E (price-earnings) ratio for the Shanghai Stock Exchange was 16.25 and the CAPE ratio was 18.43.

History

Early History

The market for shares and securities first appeared in Shanghai in June of 1866. At this point, Shanghai’s International Settlement developed everything required for a thriving stock market: several banks, legal frameworks for joint-stock companies and interest in diversification.

The following years were rocky for the market, there were several crashes caused by credit and banking crises. In 1891, during a boom in mining shares, the “Shanghai Sharebrokers’ Association” was founded by foreign businessmen, headquartered in Shanghai. In 1904, the association applied for the market to be renamed the Shanghai Stock Exchange.

1920 and 1921 saw the formation of the Shanghai Securities and Commodities Exchange and the Shanghai Chinese Merchant Exchange, both of which were merged into the Shanghai Stock Exchange in 1929.

The market closed on 5th December 1941 when Japanese forces occupied Shanghai. The exchange was briefly reopened in 1946, although it only remained this way for 3 years until the communist revolution in 1949 shut it down.

Recent History

The Shanghai Stock Exchange as we know it today was re-established on 26th November 1990 following years of cultural and economic revolution within the People’s Republic of China. Trading operations began a few weeks after this, on 19th December.

In 1997, it was decided by the State Council of China that the Shanghai Stock Exchange would be managed directly by the China Securities Regulatory Commission (CSRC). A rough period from 2001-2005 saw the market’s value halve, after peaking in 2001. This saw new rules put in place as well as a ban on new initial public offerings (IPOs). Full operation was resumed in 2006 after the ban was lifted.

2007 and 2008 saw a period of frenzy as China’s stock exchange temporarily became the world’s second-largest stock exchange. This culminated in the Shanghai Composite Index reaching an all-time high of 6,124.044 points on 16th October 2007. However, the annual report at the end of 2008 had the index down a massive 65%, largely because of the impact of the global economic crisis.

In 2019, the Shanghai Stock Exchange launched the STAR Market (officially the Shanghai Stock Exchange Science and Technology Innovation Board). The STAR market featured only technology-related companies and was touted as a direct rival to the US’ NASDAQ market.

Indices

SSE Composite Index

The Shanghai Stock Exchange Composite (or Shanghai Composite) index is the most commonly referred to indicator of the performance of the SSE. This index features all stocks (A shares and B shares) that are traded on the Shanghai Stock Exchange.

SSE 180

The Shanghai Stock Exchange 180 index represents the top 180 companies on the SSE. The companies are ranked in this by float-adjusted capitalisation, where the market capitalisation for each company is calculated by taking the equity’s price and multiplying it by the number of shares available.

SSE 50

The Shanghai Stock Exchange 50 index is a subindex of the SSE 180. It represents the top 50 companies on the SSE by float-adjusted capitalisation.

SSE Mega-Cap

The Shanghai Stock Exchange Mega-Cap is yet another subindex of the SSE 180 and SSE composite. This index represents just the top 20 companies.

CSI 300

The CSI 300 Index is a capitalisation-weighted stock market index. The index indicates the performance of the top 300 stocks with the largest market capitalisations listed for trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

The index is compiled by the China Securities Index Company, it is seen as the Chinese counterpart to the S&P 500 index and an indicator of the entire Chinese stock market’s performance.

How The SSE Works

There are two main classes of stocks on the Shanghai Stock Exchange, A shares and B shares. These differ both in the currency they are quoted in and their accessibility for investment.

B-shares are quoted in US Dollars (USD) and are open to foreign investment. On the other hand, A-shares are quoted in the Chinese Yuan (CNY) and are only available to foreign investment through a qualified program known as QFII.

A QFII is a Qualified Foreign Institutional Investor. This is a program that allows international investors, with the correct license, to invest in major Chinese companies. Before the program was introduced in 2002, investors from other nations were not permitted to buy or sell stocks on any of the Chinese exchanges.

Much of the market cap of the Shanghai Stock Exchange is made up of former state-run companies like the major Chinese banks and insurance companies and you won’t find popular foreign stocks like GameStop on there. In fact, many of the companies have only been trading on the SSE since 2001 following reforms to companies.Shanghai Stock Exchange Futures

Trading Rules And Requirements For The SSE

Any company wishing to be listed on the Shanghai Stock Exchange must meet the following listing requirements and trading rules:

  1. The company must be approved by the China Securities Regulatory Commission (CSRC).
  2. The company must have a total capital share of at least 30 million RMB (Renminbi).
  3. The company must publicly offer at least 25% of total issued shares. If the company’s total share capital is greater than 400 million RMB, this reduces to 15% of total shares.
  4. The company must have a clean history and not have committed any major illegal acts or financial fraud over the past three years.
  5. The company must have been in business for more than three years and must have made profits for three consecutive years.

Companies are required to disclose an annual report within four months of the end of each financial year. Additionally, an interim report is required within two months of the end of the first half of each financial year and quarterly reports are required within one month of the third and ninth months of the financial year.

Trading Hours

The Shanghai Stock Exchange is open Monday to Friday, with the market opening for two distinct sessions. The morning trading session is open between the hours of 09:30 and 11:30 CST (China Standard Time) or 17:30 to 19:30 GMT. Like the timings of many Asian markets, the exchange closes for lunch and is then live again between 13:00 and 15:00 CST (21:00 and 23:00 GMT).

The Shanghai Stock Exchange does operate extended trading hours. There is the pre-trading session from 09:15 to 09:25 CST and the post-trading session from 15:00 to 15:30 CST. Trading can be conducted electronically during these sessions, although the volume and liquidity are both much lower.

Important Dates

There are many different holidays in the Chinese trading calendar. In 2020, the Shanghai Stock Exchange was closed for 16 days. The 2021 holiday schedule is listed below:

  • New Year’s Day – January 1st.
  • Chinese New Year – February 11th-12th and 15th-17th.
  • Qingming Festival – April 5th.
  • Labor Day – May 3rd-5th.
  • Dragon Boat Festival – June 14th.
  • Mid-Autumn Festival – September 21st.
  • National Day – October 1st and 4th-6th.

Biggest Players

The Shanghai Stock Exchange includes some of the largest companies in the world. Below you will find the ten heavyweights of the SSE, along with their stock tickers and market capitalisations:

  1. Kweichow Moutai (600519) – 2.189 trillion CNY.
  2. Industrial and Commercial Bank of China (601398) – 1.693 trillion CNY.
  3. Ping An (601318) – 1.433 trillion CNY.
  4. Agricultural Bank of China (601288) – 1.099 trillion CNY.
  5. China Merchants Bank (600036) – 1.071 trillion CNY.
  6. China Life (601628) – 997.356 billion CNY.
  7. Bank of China (601988) – 868.228 billion CNY.
  8. PetroChina (601857) – 719.140 billion CNY.
  9. Hengrui Medicine (600276) – 476.496 billion CNY.
  10. Sinopec (600028) – 453.058 billion CNY.

The above list features some huge net worths. Trading these stocks requires a careful system and strategy, as both competition and risk are high. You must weigh your options up before investing, bear in mind that historical market data may not repeat in the future.

Shanghai Stock Exchange Vs Shenzhen Stock Exchange

The Shanghai Stock Exchange and Shenzhen Stock Exchange were both opened by the Chinese government in 1990. Shenzhen is slightly smaller than its Shanghai counterpart, with a market capitalisation of USD 3.9 trillion. The two exchanges operate similarly, with limits placed on foreign investment opportunities.

Comparing by sector, Shanghai has an even spread between manufacturing and finance (28% and 32% respectively). Whereas Shenzhen favours manufacturing and technology more heavily than finance (60% and 7.2% respectively).

Shanghai Stock Exchange Vs Hong Kong Stock Exchange

The Hong Kong Stock Exchange has only been under Chinese control since Honk Kong was ceded to China by the United Kingdom in 1997. As a result, it operates in a very different way from the Shanghai Stock Exchange. Foreign investors can freely buy and sell stocks within the Hong Kong exchange.

In 2014, the Chinese government linked the Shanghai and Hong Kong exchanges through the Shanghai-Honk Kong Connect program. This allowed foreign investors to start buying A-shares in Chinese companies.

Why You Should Trade On The SSE

Even though the Shanghai Stock Exchange does not get much news coverage in the west, it is still the fourth-largest exchange in the world. Moreover, it is the largest exchange in China, which is the world’s second-largest economy.

While it may not include the most well-known brands and logos, the SSE lists some of the world’s largest and most successful companies. It thus offers an exciting way for investors to diversify their portfolios. Even though it is difficult to invest directly on the SSE or its composite index as a foreigner, the market features many ETFs (Exchange Traded Funds) that are open to foreign investment and make the process simpler.

How To Start Trading On The SSE

It is possible to invest in stocks on the Shanghai Stock Exchange from the UK and other western countries. Although the SSE is closed to direct foreign investment, you can invest via international investment companies or China-focused exchange-traded funds (ETFs).

  1. Choose A Broker – The first step to begin trading is to choose a broker. It is important to compare all your options here. Remember to look at the costs and trading fees for each broker, these will eat away at your profits if they are too high. Also, compare the various trading platforms. These websites or app-based platforms will be where you spend your time investing, so ensure they offer all the graphs, charts, and tools you need. A full broker guide can be found here.
  2. Open An Account – Found the right broker for you? Open a trading account with them so you are ready to start trading on the SSE.
  3. Deposit Funds – Deposit money into your new account. Be wary of currency conversion and transaction fees. You will need an account in either USD or CNY.
  4. Buy SSE Stocks – Once your account is open and funded, you are ready to buy and sell shares on the SSE.

Unfortunately, it is not possible to day trade in China’s markets, including the Shanghai Stock Exchange. The Chinese government adopted a unique “T+1 trading rule” which prevents investors from selling stocks on the same day they are bought.

Shanghai Stock Exchange ETFs

Exchange-Traded Funds (ETFs) are a cheaper and simpler way to invest in Shanghai stocks. An ETF tracks the performance of specific stocks on the SSE, without the investor having to directly buy the stocks.

One of the most popular ETFs is the Harvest CSI 300 China A-Shares ETF (ASHR). This tracks the performance of the top 300 stocks across the Shanghai and Shenzhen stock exchanges.

Shanghai Stock Exchange futures

SSE Trading Tips

Hit The Extended Hours

From 09:15 to 09:25 and from 15:00 to 15:30 CST, the Shanghai Stock Exchange is only open to electronic trading. This results in a lower volume and liquidity, driving an increase in volatility, so a lot of profit can be made at this time. Moreover, after the standard session closes at 15:00 CST, many companies release their daily reports. These reports can have a huge impact on the prices of stocks, so catching the extended period can be fortuitous.

Study The History

While patterns do not always repeat, knowing a stock’s history can be a good indicator of future trends. Study 10-year charts for the various companies to see how the values tend to fluctuate in the long term. Also, check when different trading halts or blocks have occurred. You never know, history could repeat itself.

Stay Up To Date

It is always important to stay up to date on current occurrences. Company announcements have huge impacts on stock values and can completely change the picture. Regularly check sites such as Yahoo Finance and Google Finance for the latest updates, charts and forecasts. Websites such as Tradingview are a great way to check the latest figures.

Final Word On The Shanghai Stock Exchange

The Shanghai Stock Exchange is often overlooked when considering different markets and indices to invest in. As the fourth largest stock exchange in the world, with a market capitalisation of US$6.98 trillion, it represents an exciting place for investors to diversify their portfolios. While foreign investment is not straightforward, indices and ETFs provide indirect trading opportunities. Find a full list of the best brokers for SSE trading here.

FAQs

Can UK traders buy stock on the SSE?

Yes, UK traders can invest on the Shanghai Stock Exchange. This can be done either by investing in Chinese ETFs or by trading through a licensed international investment company.

Is the SSE worth investing in?

The Shanghai Stock Exchange is the fourth largest stock exchange in the world and the largest in China. This provides exciting opportunities for portfolio diversification or growth. However, currency conversion and foreign investor restrictions may mean that it is not suited to everyone.

What is an ETF?

ETFs are a cheaper and easier way for people from other countries to invest in the SSE. An ETF tracks the value and performance of a stock or group of stocks, without requiring you to actually buy the security.

Is the SSE regulated?

Yes, the Shanghai Stock Exchange is regulated. The China Securities Regulatory Commission regulates and manages the stock market.

Can I day trade on the SSE?

No, investors cannot day trade on the SSE as China adopts a unique “T+1” rule, which means stocks cannot be sold on the same day they are bought.

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