The Shanghai Composite Index Was Compiled And Adjusted On Schedule. Experts Are Eager To Discuss Structural Adjustment And Weighting Improvement.

Since the proposal of optimizing the Shanghai stock index by many members of the NPC and CPPCC during the two sessions of the NPC, the discussion on the index compilation method has been continuously heated.

The Shanghai stock exchange responded publicly that it would fully listen to the views of the market and learn from international best practices. The Shanghai Stock Exchange also issued a voice on June 5th, saying it will set up an index expert consultation mechanism. The first index compilation expert consultation meeting will be held in the near future.

Judging from the public voicing of many experts in the market, the pain spot of the Shanghai stock index is clear: whether it fully reflects China's economic development and whether it reflects the Shanghai stock market in real terms. And how to optimize the problem is mainly focused on the four aspects of the company structure, the timing of new shares, whether to eliminate ST shares and index weighting.

Reporters noted that the relevant recommendations of the optimization index, the market, "there is consensus, there are also disputes." Therefore, it is the wisdom of the regulators to listen to the views of the parties and make decisions in the end.

Structural imbalance of listed companies

In June 15th, the Shanghai Composite Index closed at 2890 points. Since March, the index has been hovering around 2800-2900. For a long time period, the 2800 point of the Shanghai Composite Index has been reached as early as 2007.

As a result, a number of committee members put forward relevant suggestions on index optimization during the two sessions this year. Combined with many experts' public opinions and reporters' interviews, the market generally believed that the problem of "stock index distortion" mainly lies in its failure to fully reflect the sustained high growth of China's economy.

Li Xunlei, chief economist of Sino Thai securities, pointed out that "China's economy has achieved a high growth rate of thirty or forty years. In 2000, China's GDP exceeded 10 trillion yuan and reached 99 trillion yuan in 2019. The Shanghai Composite Index has reached 2000 points in 2000, and why it failed to break through 3000 points in 2020, and the contrast between the 10 times GDP and 50% stock index is very small.

The reason is that Li Xunlei believes that there are four main reasons affecting the representational nature of stock index, including the fact that the structure of listed companies is not completely synchronized with the change of macroeconomic structure. The number of companies with small profits or losses in listed companies has increased, and there are unreasonable and weighted ways in the time when new shares are included in the index.

Reporters found that the first two problems actually point to the structural problems of listed companies.

In this regard, Pan Xiangdong, chief economist of new era securities, believes that the biggest problem in the establishment of the Shanghai Composite Index lies in the structure of listed companies themselves. On the one hand, the listed companies are decoupling from China's economy, and China's new economy is growing. Some new economic enterprises choose to go overseas and do not list in the mainland, so they can not be included in the index. This also leads to a large proportion of financial stocks and cyclical stocks in the index. On the other hand, China's delisting system has yet to be improved, and some listed companies can not withdraw from the market in time, affecting the quality of the index.

But can this point to "stock index distortion"? There are slight differences in the judgment of the causal relationship between the structure of listed companies and the "exponential distortion".

On the evening of June 14th, Lin Yixiang, chairman of the Tx Investment Consulting Co, made a public voice on micro-blog, saying that the Shanghai composite index should not be wronged and should not be aborted. If it is true, whether the stock index is distorted or not should be the index for the stock market, not the stock index for GDP.

"The structure of listed companies is the issue of stock issuance and listing, rather than the issue of composite index. If the listed companies can not reflect the economic development and the growth of GDP, this is a problem that the listed companies can not correspond to the economic structure and economic growth. The responsibility lies in the issue and listing of stocks and the elimination of delisting, rather than the stock index; or, the performance of listed companies and their performance on stock prices do not reflect economic growth, which is the operation of listed companies, the supervision and construction of stock market. The problem is also not a question of stock index. " Lin Yixiang said.

At the same time, he believes that the Shanghai composite index is an index of all the listed companies in the market. There are a large number of small profits or loss listed companies in the market. These companies should be reflected in the stock index.

Guoxin Securities's chief strategist Yan Xiang's view is also quite consistent with it. "Bad stocks are not delisting in time, and the structure of listed companies is unreasonable. These problems are not related to the index compilation method. The Shanghai composite index is a composite index, not a constituent stock index, without the task of selecting samples. "

Weighted improvement

There are also differences in market views on whether to eliminate structural stocks such as ST shares and B shares. However, in the recommendations of all the experts interviewed, the proposed direction of adjusting the timing and weighting of new shares is basically the same.

For example, when the issue of new shares is included, the current Shanghai Composite Index will take the index of the eleventh trading days after the listing of the new shares, and the market's point of discussion is "when will it be included"?

Dong Deng, director of the Institute of financial and securities research of Wuhan University of Science and Technology, has two points to deal with: the new shares of the science and technology board should be included in the sixth trading days, and the highest record of the trading limit is 30 trading days. For this reason, it is recommended that the approval of the new stock issue be completed after the 30 trading days.

Including the above recommendations, Dong Dengxin put forward six proposals for optimizing the index. However, the most important point is that the Shanghai composite index should be weighted to the domestic circulation shares.

"First, restricted stock can not be traded, it can not be reflected in the real supply and demand relationship. This part of the restricted stock should not be included in the weighted market value. Second, offshore circulation shares are not traded in the mainland, nor should they be included in the weighted market value. It is unscientific to weigh the total equity or total market value as the weighted market value of a market index, and this is in urgent need of adjustment. " Dong Dengxin told reporters.

This is a proposal with high voice. Li Xunlei regards the improvement of weighting method as the last step from "easy to difficult".

"In 2005, S & P announced that its US market index (including the S & P 500 index) was weighted from total equity to free floating capital stock. In 2005, the TOPIX index of Japan's Tse was divided into 3 stages, weighted by total capital stock to freely circulating capital stock. International experience is also very rich and mature, and the stock index is also necessary to advance at an early date. It is only because the Shanghai stock index has no experience in such changes, and the problems such as historical consistency and comparability, investor habits and so on still need to be considered. Therefore, we need some observation and evaluation time. Li Xunlei said.

Pan Xiangdong also believes that the establishment of the Shanghai composite index can be revised to the market value rather than the total capital stock. At the same time, it is suggested to combine the financial data of listed companies, such as cash flow, dividends and revenue, to determine the weights of the listed companies in the Shanghai Composite index.

But in Yan Xiang's view, it is not the main reason why the Shanghai Composite Index has been flat for a long time. However, after 2007, the index has been digesting the "historical burden". This "historical burden" is that in 2006 and 2007, a large number of large cap companies were listed on the high and overvalued value.

The statistics of the two sets of data or intuitively reflect what is called "digest valuation": the total market capitalization of the 39 companies listed on the Shanghai Stock Exchange in 2006 was 14 trillion and 900 billion in May 2020, while the total market capitalization at the end of May 2020 was only 9 trillion and 400 billion yuan. In terms of valuation, the 39 companies have a median price earnings ratio of 59 times a month, and only 8.6 times the median price earnings ratio by the end of May 2020.

Yan Xiang is relatively optimistic about the future of the Shanghai Composite Index. "After more than a decade of digest valuation, the Shanghai Composite Index's P / E has dropped from 50 times in 2007 to less than 13 times today, and the historical burden has been almost solved. On the other hand, compared with the past, the market structure is more diversified."