Introduction

 

 

The Shanghai Stock Exchange (SSE) is one of the major stock exchanges in China along with the Shenzhen Stock Exchange. Located in the Pudong New Area of Shanghai, the Shanghai Stock Exchange has grown rapidly over the past three decades to become one of the world’s top five stock exchanges by market capitalization.

Key Facts and Figures

• Founded in 1990, the Shanghai Stock Exchange is still considered relatively young compared to other major global exchanges
• As of December 2022, the total market capitalization of stocks on the Shanghai Stock Exchange stood at $7.31 trillion (1)
• Over 1,800 companies are listed on the exchange across two boards – the main board and the Science and Technology Innovation Board (STAR Market)
• The benchmark Shanghai Composite Index tracks the performance of all A-share stocks traded on the Shanghai Stock Exchange
• Daily trading value averaged $112.8 billion in 2021 on the Shanghai Stock Exchange (2)

Recent Performance and Trends

The Shanghai Stock Exchange had a challenging 2022 amid China’s economic slowdown and disruptions from COVID-19 lockdowns. However, there are signs activity is recovering:

• The Shanghai Composite entered a bear market in 2022, falling over 20% from January highs before recovering late in the year
• IPO activity on the STAR Market bounced back strongly in 2022 after a weak 2021 (3)
• Key regulatory changes introduced include allowing foreign investors to trade more derivatives, easing IPO rules, and improving market supervision systems (4)

Key Stock Listings in 2022

Some major Chinese companies listed on the Shanghai Stock Exchange in 2022:

• China Telecom – raised $8.4 billion in Shanghai’s largest IPO in a decade (5)
• LATAM Airlines affiliate – raised $455 million in a rare listing by a foreign company (6)
• SF Holding Co – China’s largest delivery company raised $942 million (7)

Shanghai-London Stock Connect

In 2022 Chinese and UK regulators announced plans towards a Shanghai-London Stock Connect program to allow companies listed in Shanghai and London to dual list through depositary receipts. This could significantly boost international participation in the Shanghai Stock Exchange. The first group of eligible companies is expected to launch mid-2023 if approved (8).

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Role in China’s Financial Market Reforms

The Shanghai Stock Exchange is playing an important role in the ongoing modernization of China’s capital markets.

Key Areas of Focus

The exchange is prioritizing reforms in areas such as (9):

• Attracting more foreign investment
• Improving supervision mechanisms
• Promoting innovation and entrepreneurship through the STAR Market
• Advancing opening-up policies
• Optimizing pricing and trading mechanisms

Recent Policy Changes

Some major reform policies impacting the Shanghai Stock Exchange include:

• Registration-based IPO system fully implemented in 2022, replacing regulator approval with information disclosure requirements (10)
• Expansion of the Stock Connect trading link between Hong Kong and mainland China
• Introduction of new futures and options products
• Allowing foreign institutions to trade bonds without a rating

Financial Sector Development Goals

Broader goals shaping capital markets policy include (11):

• Increasing direct financing channels for businesses
• Improving regulatory efficiency
• Advancing RMB internationalization
• Achieving greater two-way opening of financial markets

The Shanghai Stock Exchange is likely to remain central in achieving these objectives over the next 5-10 years.

Challenges and Risks

Despite its rapid growth, the Shanghai Stock Exchange also faces challenges around volatility, speculation, and overseas perceptions:

• Shanghai stocks are prone to booms and busts – the index fell 14% in one week in April 2022 for example (12)
• Many Chinese retail investors engage in speculative trading fueled by leverage rather than long-term investment
• Ongoing US-China tensions and technology restrictions impact risk sentiment

Tighter regulation, improved investor education, and structural reforms may help address these issues over time.

Outlook for Continued Development

The Shanghai Stock Exchange is likely to sustain strong growth in the next decade by:

• Continuing financial market reforms and opening-up policies
• Leveraging China’s rising household wealth, savings and investment demand
• Launching new listing avenues like the Shanghai-London Stock Connect
• Attracting major SOE, tech and clean energy IPOs
• Expanding its derivatives market which is still relatively small
• Cooperating with other exchanges on sustainability and climate financing

If China achieves more balanced economic development and avoids major financial risks, the Shanghai Stock Exchange has room to expand and play an increasingly global role.