Shanghai Stock Exchange (SSE) and China Securities Index Co., Ltd. (CSI) recently announced that three SSE STAR Market indices, including the SSE STAR Earnings Quality Strategy Index, the SSE STAR Brand Name Drug Index, and the SSE STAR Value 50 Strategy Custom Index will be launched on August 23, signaling a step forward to diversify the STAR Market indices as instructed by the STAR Market Eight Measures. In addition, the SSE STAR 200 Index (hereinafter referred to as the STAR 200 Index) will be launched on August 20.
Following the release of the 4 indices including the STAR 200 Index, there will be a wide range of 24 broad-based, thematic, and strategic indices dedicated to the STAR Market. The scale of domestic and international index-tracking products will amount to nearly RMB 160 billion.
Among them, the STAR 200 Index is made up of 200 securities with relatively small market value and good liquidity from the STAR Market. It shares a consistent methodology with the STAR 50 Index and STAR 100 Index but has a differentiated positioning. The STAR 50 Index, the STAR 100 Index, and the STAR 200 Index will constitute a size index series that displays the performance of STAR-listed companies at different size levels.
The SSE STAR Earnings Quality Strategy Index comprises 50 constituent securities with strong profitability and good cash flow conditions from the STAR Market, and reflects the performance of STAR-listed companies with better profit quality. Two factors account for its selection method: return on equity (ROE) as a measurement of the company's profitability, and consistency between the company’s operating cash flow and net profit as an evaluation of the quality of its profitability. The constituents have demonstrated outstanding long-term profitability and promising performance growth potential. Their net profit growth rate, as disclosed in the latest semi-annual report, has reached 44.9% year-on-year.
In terms of industry distribution, the SSE STAR Earnings Quality Strategy Index focuses on high-quality development sectors. The electric power equipment, semiconductors, and the electronic industries make up approximately 60% of the index. As of the end of July, the total market value of the constituents was approximately RMB 1 trillion, and the average daily turnover over the past year reached approximately RMB 7.5 billion.
The SSE STAR Brand Name Drug Index selects 30 securities of STAR-listed companies engaged in innovative drug business to reflect the performance of the STAR Market in this particular field. The index will function as an excellent representation and investment tool for investors. As of the end of June, the total R&D investment of the constituents over the past year was RMB 26.3 billion, up 14.5% year-on-year and higher than the average of the STAR Market.
The SSE STAR Value 50 Strategy Custom Index combines quality, value, and low-volatility factors in its methodology and selects 50 STAR Market securities with low operational risks and low valuation to reflect the performance of STAR-listed companies with robust value indicators. As of the end of July, the total market value of the constituents was approximately RMB 1.9 trillion, and the median P/E was around 34. The constituents operate primarily in the information industry, information technology, and medicine and health industries with a combined weight of approximately 90%.
The STAR Market Eight Measures released in June this year sets requirements for enriching the STAR Market indices, improving index compilation methodology, and enhancing the "Shanghai Index" system.
According to relevant responsible person from the SSE, the SSE will continue to grow the STAR Market index system to provide investors with more diversified investment targets and performance benchmarks, so as to make further progress on the Five Major Works of Finance and boost the capital market’s capability to better serve high-quality development of the real economy.
The above information is provided for reference purposes only and does not constitute investment advice.
