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Struggling Chinese bourse makes first-ever foray of acquisition

China is the world’s second largest economy and has one of the fastest growth rates of any G20 nation, but its stock markets have been among the worst performing globally in 2016. Starting with a botched attempt to reduce volatility that instead triggered a spectacular meltdown, Chinese bourses have spent the year struggling against feckless policymakers, massive capital flight and a languishing currency. Unlike most worldwide exchanges where institutions hold sway, China’s stock markets are dominated by small financiers, heightening volatility and short-termism.

Government-backed funds injected billions of dollars into China’s markets during 2015 in an attempt to stop them bleeding out, and still play a main role, ignoring profit, loss and everything in between, and creating huge price distortions.

In such an environment, it’s quite hard for financiers to apply whatever money-making strategies that they have learned over the years. Even so, brokers are mildly optimistic about this year 2017 but hedge their bets with huge ranges for their 2017 year-end forecasts.

China is in dramatic stock market slide as tumbling stock market plunge has knocked about 30% off Chinese shares since mid-June. Hundreds of Chinese companies have suspended dealings in their shares in a bid to arrest a frenzy of selling. The authorities have stepped in with various measures, including a surprise interest rate cut. But so far, their efforts have failed to stem the rout and some analysts say the moves by officials have only served to heighten alarm.

Investors and policymakers around the world are looking on with growing concern that turmoil in the stock markets will spill into China’s real economy, the second-largest in the world and a huge engine of global growth.

Under the scenario, China government decided in December last to have share in stock market of Pakistan and in its regard deal with the Pakistan government has been finalized to acquire 40 percent strategic share of Pakistan Stock Exchange. Through the deal, the Chinese bourse has also made its first foray in an acquisition outside China.

The Chinese consortium comprises three Chinese exchanges — China Financial Futures Exchange Company Limited (lead bidder), Shanghai Stock Exchange and Shenzhen Stock Exchange.

CHINA FINANCIAL FUTURES EXCHANGE

China Financial Futures Exchange (CFFEX) is a demutualized exchange dedicated to the trading, clearing and settlement of financial futures, options and other derivatives. On September 8, 2006, with the approval of the State Council and China Securities Regulatory Commission (CSRC), CFFEX was organized in Shanghai by Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, Shanghai Stock Exchange and Shenzhen Stock Exchange.

CFFEX’s key functions include arranging and organizing the listing, trading, clearing, settlement and delivery of financial futures and other derivatives, formulating business principles, conducting self-management, disseminating market trading information, offering technology, venue and facility services also other functions accepted by the CSRC.

Moreover, CFFEX steadily advances the opening-up of the financial futures market by joining worldwide futures trade associations, inking MOUs with major overseas exchanges and strengthening cooperation in information sharing, personnel training, business research and studies, product development, etc thus meeting the domestic and foreign needs for cross-border derivatives trading.

 

SHANGHAI STOCK EXCHANGE

The Shanghai Stock Exchange (SSE) was founded in November 1990, and started operation in December of the same year. It is a non-profit organization directly governed by the China Securities Regulatory Commission (CSRC).

SSE bases its development on the rules of legitimacy, regulation, self-discipline, and compliance in order to create a transparent, open, reliable and efficient marketplace.

SSE endeavors to perform a variety of functions like giving marketplace and facilities for the securities trading, formulating business principles, accepting and arranging listings, organizing and monitoring securities trading, regulating members and listed firms, and managing and disseminating market information.

SSE has 29 departments or affiliated organizations. After 26 years of development, SSE has evolved into an exchange with a sound market structure covering four main securities categories: equities, bonds, funds and derivatives.

By the end of 2015, SSE altogether had 1081 listed firms with the total market capitalization hitting 29.52 trillion RMB. Its total yearly turnover in 2015 stands at 133.10 trillion RMB and the average daily turnover stood 545.59 billion RMB. The total capital increased in the equities market during 2015 was a staggering 871.30 billion RMB.

The bond market consists of 4,538 listed bonds with the outstanding value totaling 3.44 trillion RMB, and the annual turnover standing at 122.85 trillion RMB. 135 funds have been listed in the fund market with the annual turnover hitting 10.38 trillion RMB.

The total value of premium was 23.67 billion RMB for SSE 50 ETF option. The recorded account of investors has stood 135.86 million by the end of 2015.

SHENZHEN STOCK EXCHANGE

Shenzhen Stock Exchange (SZSE), organized on December 1, 1990, is a self-regulated legal entity under the supervision of China Securities Regulatory Commission (CSRC). It also organizes, supervises securities trading and performs duties prescribed by laws, regulations, principles and strategies.

Its major functions include offering the venue and facilities for securities trading, formulating operational principles, receiving listing applications and arranging securities listing, organizing and supervising securities trading, supervising members; regulating listed firms, managing and disseminating market information and other functions as accepted by the CSRC.

SZSE is committed to developing China’s multi-tiered capital market system, serving national economic development and transformation and supporting the national policy of independent innovation.

The SME Board was introduced in May 2004. Since 2000, SZSE has inked MOUs with 30 main stock exchanges and financial institutions globally and improved cross-border cooperation and communications.

ECONOMIC INDICATORS OF CHINA
DETAILS
PRESENT
DATE
Unemployment Rate
4.04 percent
16-Sep
Inflation Rate
2.1 percent
16-December
Interest Rate
4.35 percent
16-December
Currency
6.83
17-January
Stock Market
3159 points
17-January
Money Supply M0
6830 CNY Billion
16-December
Money Supply M1
48660 CNY Billion
16-December
Money Supply M2
155010 CNY Billion
16-December
Consumer Confidence
108
16-December
Disposable Personal Income
31195 CNY
15-December
Corporate Tax Rate
25 percent
16-December
Personal Income Tax Rate
45 percent
16-December
Sales Tax Rate
17 percent
16-December
Social Security Rate
48 percent
16-December
Social Security Rate For Companies
37 percent
16-December
Social Security Rate For Employees
11 percent
16-December
Source: Trading Economics

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