Shanghai Stock Exchange:

1
Shanghai Stock Exchange

• The Socialist Stock Market

2
In the beginning

• The Shanghai Stock Exchange (SSE) was
  reestablished November 26th 1990 and began
  December 19th 1990.
• Securities were first sold in the late 19th
  century then stopped once the Communist Party of
  China took over in 1949.
• Today its the ninth largest stock exchange in
  the world and the second largest in China (the
  Hong Kong Stock Exchange is the largest).

3
Types of Securities

• The SSE is composed of several types of Stocks.
• A-Shares For domestic Chinese investors only and
  are denominated in Renminbi (RMB)
• Legal Shares A type of A-Share designated for
  Companies to buy
• State Shares Held by the Government (which also
  owns the Companies so in turn the Government also
  owns legal shares)
• B-Shares Can be purchased by holders of foreign
  passports (including Hong Kong) and are
  denominated in U.S. Dollars. In December 1998, B
  Shares had a combined value of 4.37 billion
• N-Shares and L-Shares Chinese Enterprises listed
  on the New York and London Stock Exchanges.

4
Why So Many Shares?

• The SSE is a stock market with socialist
  characteristics. i.e. Stocks are invested in
  SOEs.
• B-Shares are used as a way to get foreign
  investment and also prevent foreign takeover.
  B-shares only make up a small part of the market
  (approximately 5) Some analysts argue that
  B-share SOEs are less profitable than their
  A-share counterparts.
• The Central Government has a 34.25 (2003) market
  share. (Not including legal shares)

5
A new Game

• Investing in China is rather new and is composed
  of many Green Chinese investors.
• The market is very volatile and has had many
  extreme fluctuations in the past week alone.
• During the 1990s it was a Bull market then
  from 2000-2005 stocks went on the down trend.
  During the 1990s many investors would keep their
  stocks for just 1-3 months. Short term
  speculation was king and is still a dominant
  investing strategy of many investors.
• What makes the SSE so different from other stock
  exchanges is that state owns several shares.
  Strange repercussions can occur
• For example in 2001 the state tried to sell some
  of its own shares to finance a social security
  plan but all the extra shares scared investors
  and greatly devalued the market by 25 in three
  months.
• Also their have been cases of corruption for
  communist officials.

6
Mixed Signals Is she just a Tease or does she
want more

• Right now the market is growing at a massive
  rate. Investors and analysts wonder how long
  China can maintain this and not overheat.
  Former Chairman Greenspan claims The end is
  nigh The SSE is rather unpredictable.
• In the first quarter of 2007 the economy had an
  11 percent growth annual growth rate which dwarfs
  the U.S. by about 10 percent.
• This year there have been both record gains and
  losses which have produced much volatility.

7
The last Six Months
8
Since last Hump Day

• The Bank of China raised the stamp tax from .1
  to .3 percent and pandemonium ensued. The SSE
  dropped 6.5. Some view this as an attempt to
  curve short term speculation. (Earlier in May,
  the government increased interest rates but
  market slowdown did not occur). A-Shares took the
  largest hit.
• Thursday, the market rose by 1.4.
• Friday, the SSE then dropped by 2.6.
• Monday, the Stock market reported its largest
  point loss (330.4 points) and decreased by a
  massive 8.26
• Tuesday, the unpredictable Shanghai market
  increased by nearly a hundred points (2.65)

9
Conclusion She is a Tease

• The past five business days have produced
  considerable change and more is bound. Since
  Friday it is now legal for any SOE to declare
  bankruptcy.
• Also on May 21st the Yuan widened to the dollar
  (and other foreign currency) from .3 to .5. Now
  the Yuan isnt as fixed and can now fluctuate
  more/
• I believe that the market will not cool down
  because Chinese investors still want a piece of
  the action.
• i.e. Ironically Wednesday was a terrible day yet
  426,000 new investor accounts were open.
• The only thing certain in the Shanghai market is
  that its highly volatile and short term
  speculation is the dominant strategy of several
  A-Share investors.

10
Preguntas?

• Lex Hernandez 6/5/07
• Econ 461Dr Parker