The Shenzhen Stock Exchange is one of the two main stock exchanges in mainland China, the other being the Shanghai Stock Exchange. Both exchanges were opened by the Chinese government in 1990 as a way of modernising and expanding China's economy by opening the country to foreign investors.
The Shanghai Stock Exchange is located in China's financial capital, while the Shenzhen Stock Exchange is headquartered in one of China's most modern cities.
Shanghai is the larger of the two exchanges in terms of market capitalisation (US$5.1 trillion compared to Shenzhen US$3.6 trillion, as of December 2017). That makes Shanghai the fourth largest stock exchange in the world and Shenzhen the eighth largest.
However, when ranked by the number of companies whose shares trade on the exchanges, Shenzhen is larger. Nearly 2,100 companies traded on Shenzhen compared to about 1,400 in Shanghai. Shenzhen is also larger in terms of volume traded.
Shenzhen vs. Shanghai Stock Exchanges
In addition to the above, the two exchanges differ in terms of the types of companies whose shares are traded and the types of investors who trade there.
Larger, state-owned companies tend to trade on the bigger Shanghai exchange while smaller, more entrepreneurial and technology-focused companies often trade in Shenzhen.
- About 32% of the companies that trade in Shanghai are financial companies, versus about 7% in Shenzhen.
- Conversely, about 60% of companies traded in Shenzhen are manufacturers, compared to 28% in Shanghai.
- Also, 15% of those in Shenzhen are mining companies versus less than 3% in Shanghai.
Most investors who trade in Shanghai are institutions, such as banks and pension funds, while individual investors tend to predominate in Shenzhen.
Products that trade on the Shenzhen Stock Exchange include equities, mutual funds, ETFs, bonds and asset-backed securities, indexes, and diversified derivative financial products, including warrants and repurchases.
The Shenzhen Stock Exchange is open five days a week for four hours a day, and is closed for 21 holidays during the year.
Supporting China's Economy
According to its website, the Shenzhen Stock Exchange (SZSE) "is committed to developing China's multi-tiered capital market system, serving national economic development and transformation and supporting the national strategy of independent innovation. SZSE plays an increasingly important role in supporting the real economy and transforming the nation's economic growth model."
The SZSE is self-regulated, but it's supervised by the China Securities Regulatory Commission (CSRC). Since 2000, SZSE has signed memorandums of understanding (MOUs) with 30 major stock exchanges and financial institutions around the world. SZSE is a member of both the World Federation of Exchanges (WFE) and the Asian and Oceanian Stock Exchanges Federation (AOSEF). It's also an affiliate member of the International Organization of Securities Commissions (IOSCO).
Three Trading Boards
The SZSE consists of the three boards: the Main Board, the SME (small and medium enterprise) Board and the ChiNext market.
The Main Board, which dates back to 1986, is "a vital financing channel for major enterprises," according to the SZSE website. "The Main Board market has played an active role in promoting a modern enterprise system, optimizing resource allocation, readjusting economic restructure and facilitating economic growth. With enhanced financing function and issuers' corporate governance structure, the Shenzhen Main Board has continuously expanded its capacity to serve the real economy."
As of April 2018, 476 companies are listed on the Main Board. Among the biggest companies listed on the Main Board are Midea Group, Ping An Bank and China Vanke Co.
The SME Board was launched in May 2004. Its creation "was a major step toward the establishment of a multi-tiered capital market system" in China and it "has become a unique, indispensable and independent segment" in that system, according to the SZSE.
"The institutional innovation of the SME Board was an exploration for the Chinese capital market in its emerging and transitional stage," the SZSE website reports. "While meeting the demands of the capital market, the SME Board has laid a solid institutional basis for its rapid and sound development."
As of April 2018, 911 companies are listed on the SME Board. Among the largest listed companies are Transfar Zhilian Co., Huapont Life Sciences and Hongda Xingye.
The ChiNext market, which was launched in October 2009, "provides an important platform for implementing the national strategy of independent innovation," the SZSE says.
"It helps accelerate the transformation of economic development and galvanizes growth in emerging industries of strategic importance." The ChiNext market promotes "allocation of social funds to innovative businesses and emerging industries."
As of April 2018, 722 companies are listed on ChiNext. Among the largest companies listed on this board are Guangdong Wens Foodstuffs Group, East Money Information Co. and Sanju Environmental Protection & New Materials.
Stock Connect With Shanghai And Hong Kong
In November 2014, the Hong Kong, Shanghai and Shenzhen stock exchanges created Stock Connect. The initiative allows international and mainland Chinese investors to trade securities in each other's markets through the trading and clearing facilities of their home exchange. The scheme now covers more than 2,000 eligible equities in Shanghai, Shenzhen and Hong Kong.
The Shenzhen-Hong Kong Stock Connect was launched in late 2016. The program enables investors in Hong Kong to buy Shenzhen-listed stocks, including many prominent mainland technology and consumer companies, while Chinese investors can buy Hong Kong-listed shares. A similar Shanghai-Hong Kong Stock Connect, which serves to connect those two exchanges, was launched in late 2014.
At nearly 30 years old, the Shenzhen Stock Exchange is one of the two main stock exchanges in mainland China and one of the largest in the world. The exchange generally caters to smaller, more innovative companies and individual investors.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…