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Important Information About The Chinese Stock Market Indices

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There are two main Chinese stock market indices: the Shanghai Composite Index, which trades on the Shanghai Stock Exchange (SSE) and the Hang Seng Index, which trades on the Hong Kong Stock Exchange.

Stock indices are designed to measure the overall performance of a stock market as measured by market capitalization (the price of an individual share times the number of public shares outstanding). They include a select group of stocks, chosen by the exchange in this case, as a proxy for the general market.

Stock market indices can be used as investments. They can capture the growth available in a stock market without the added risk of picking individual stocks. It is very possible to buy a stock that goes down due to bad news affecting that company even when the overall stock market performance is positive. This has happened to many stockholders over the years.

They are also used by analysts and news organizations as a quick way of portraying the overall market performance.

The SSE started out in 1990 at a price of 100. It traded as high as 6100 in the second half of 2007 – before the financial crisis hit the United States and Western Europe – and then moved back down to its recently traded price of 2450.

There are also other, less popular SSE indexes including SSE 180 Index, SSE 50 Index, SSE Dividend Index, SSE New Composite Index, SSE Composite Index, Sector Indices, SSE Fund Index, SSE Government Bond Index, and SSE Corporate Bond Index. Among them, the earliest one compiled was SSE Composite Index. It is the one commonly quoted when discussing the performance of the Chinese stock market. The SSE Composite Index contains all listed A shares and B shares. A shares can only be owned by Chinese nationals and selected foreign institutions. B shares can be owned by foreigners.

The Hong Kong Stock Exchange began trading in 1891. Since then, it has grown to the second largest stock market in China and the sixth largest overall.

The Hang Seng Index trades on the Hong Kong exchange. It is a market capitalization weighted index which tracks the performance of the overall Hong Kong market.

The Hang Seng index started at 100 on July 31, 1964. In October of 2007, it reached its all time high of 31,638. It recently closed at 19,399. It has four sub-indices that were created in 1985. These include the Finance, Utilities, Properties and Commerce & Industry sectors.

Some experts predict that China can continue its growth rate of 7 -8 % for the next decade. The best way to participate in this growth is investing in one of the indices based upon the Chinese stock market such as the Shanghai or Heng Seng index. Over the long term, both of these are expected to grow with the Chinese economy.

Just about all portfolios can benefit from exposure to the Chinese stock market, even with just a minor allocation of the assets available for investment. China is the fastest growing large economy in the world and Chinese stock market indices track that fast growth.

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