The Shenzhen-Hong Kong stock connect programme is set to launch within the next several weeks, offering foreign investors unprecedented access to the Shenzhen market. For readers unfamiliar with the Shenzhen exchange, here is a brief overview in charts.
On its own, Shenzhen is the world’s ninth-largest stock exchange by market capitalisation and eighth-largest by number of listed companies. If taken together, the grouping of Shanghai and Hong Kong would be the second only to the New York Stock Exchange.
As with China’s real economy, manufacturing makes up the largest share of listed companies by market cap. But compared with Shanghai, Shenzhen offers greater exposure to emerging sectors such as consumption and technology, media and telecoms.
Liquidity and volatility
The Shenzhen market was among the most liquid in the world in September by share turnover velocity, which measures turnover as a proportion of total market cap. China’s retail investors favour the Shenzhen market because the proliferation of small-cap stocks means plentiful opportunities for momentum plays.
But speculators’ preference for Shenzhen also makes the market more volatile. Since the beginning of 2014, the Shenzhen Composite Index has risen or fallen more than 1 per cent in a single day 212 times, compared with 149 times for the Shanghai Composite index and only 105 times for the Hang Seng index.
The Shenzhen Composite tends to correlate with the Shanghai Composite in terms of the direction of daily movements, but over time Shenzhen has outperformed both Shanghai and Hong Kong. The Shenzhen index has nearly doubled from its end-2013 level. Meanwhile, Shanghai is up 51 per cent and Hong Kong only 9 per cent.
Additional reporting by Ma Nan
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