Shanghai Stock Exchange Boosts Construction Of Blue Chip Market By Building Multi-Tiered Blue Chip Market Index System

With the official release of SSE 100 and 150 Indices in April this year, the blue chip market index system of the Shanghai Stock Exchange (SSE) has been gradually improved and the construction of the system's main structure has been completed on the whole upon 10-year unremitting efforts from 2002 to 2012.

The SSE's multi-tiered blue chip market structure, with the priority given to the growth of typical companies with blue chip shares, rising companies with blue chip shares and promising companies with blue chip shares, has been further defined as follows: the board of the typical companies with blue chip shares become the backbone, that of the rising companies with blue chip shares come to the stage and that of the promising companies with blue chip shares begin to take shape. The SSE will further deepen the construction of the multi-tiered blue chip market index system in the future. By continuously focusing on the development goal of the multi-tiered blue chip market, the SSE will perfect the blue chip market index system in the aspects such as dividend distribution and industrial clustering, promote listed companies' dividend distribution, foster emerging industries, help the enterprises with various scales for their listing and financing and facilitate the functions of the capital market in the development and transformation of China's economy.

Fostering the stabilizer of the capital market — the board of the typical companies with blue chip shares become the backbone

As the fundamental work for the construction of the SSE's blue chip market, the SSE constantly promotes the construction of the blue chip market index system. In a bid to define the market structure of the board of the typical companies with blue chip shares, the SSE launched the SSE 180 Index on July 1, 2002 and the SSE 50 Index at the beginning of 2004, both of them becoming the main indices of the board of the typical companies with blue chip shares. The release of the two indices elevated the market influence of the board of typical companies with blue chip shares in addition to attracting more large-scale enterprises to go public at the SSE. With the listing of large and oversize enterprises including Industrial and Commercial Bank of China Limited and China Shenhua Energy Company Limited in succession after 2006, the pillar industries in the national economy such as financial and energy industries gradually played a leading role in the board of the typical companies with blue chip shares. As the SSE 180 Index constituents almost cover all large quality enterprises on the Shanghai market, the representative index of the board of the typical companies with blue chip shares has been increasingly accepted by the public. In return, last year, the SSE 180 index constituent companies totally distributed cash dividend of RMB284 billion to investors of A shares, with the dividend amount of A shares accounting for 89% of that of SSE-listed companies and the proportion of dividend payment up to 30%.

Accelerating the economic transformation — the board of the rising companies with blue chip shares come to the stage

While promoting the listing of mature enterprises, the SSE had early been committed to the construction of the multi-tiered stock market after realizing the development limitations of the traditional industries and the resource bottlenecks in the listing of large enterprises. Even from 2000 to 2008 when large traditional enterprises were listed, the SSE didn't weaken the services for SMEs and enterprises in emerging industries. Among the enterprises listed at the SSE from 2000 to 2008, those with IPO shares less than 80 million shares account for 70%, including quality enterprises in the areas related to IT, new energy, new material, etc.

On October 10, 2010, after making the decision on accelerating the cultivation and development of strategic emerging industries, the State Council upgraded this decision to be a great strategic task in the economic and social development in the new period and defined the significance of cultivation and development of strategic emerging industries to China's construction of modernization. In a bid to boost economic transformation and support change of China's economic growth mode, the SSE officially launched the SSE 380 Index in November that year, taking it as the representative index for the board of the rising companies with blue chip shares in the Shanghai market. In 2012, the SSE also launched the SSE 100 Index, with an aim of further highlighting the core investment shares on the board of the rising companies with blue chip shares.

Different from the board of the typical companies with blue chip shares represented by the SSE 180 Index, most of the rising companies with blue chip shares are those in such emerging industries as pharmacy, biotechnology, high-end equipment manufacturing and new-generation IT as well as the industries like consumption and service ones benefiting from the expanded domestic demands and the transformation of the economic development mode, with the weight up to 40%. Most companies in these industries are growing rapidly.

Supporting the development of the companies with small and mid-cap stocks — the board of the promising companies with blue chip shares begin to take shape

The companies with small and mid-cap stocks and private enterprises are important forces for job enlargement. However, small and mid-sized companies are facing future development bottlenecks due to financing problems. Concerning the problems faced by small and mid-sized companies and private enterprises in their development, the SSE dispatched its staff to the grass roots for research on the enterprises' demands and strengthened the cultivation of to-be-listed companies. Concerning the listed companies, apart from the boards of the typical companies and rising companies with blue chip shares, a batch of small and mid-sized listed companies with great potentials formed the board of the promising companies with blue chip shares. The SSE also compiled the indices reflecting the board of the promising companies with blue chip shares.

In April this year, the SSE released the SSE 150 Index and positioned it as the core investment index for the board of the promising companies with blue chip shares. Compared with the boards of the typical companies and rising companies with blue chip shares, the constituents of the board of the promising companies with blue chip shares, highlighted by more fluctuant operation, active stock trading and distinct SMEs' features, have less market values. In addition to reflecting the SSE's focus on the development of SMEs, the release of the SSE 150 Index is another innovation of the SSE for exploring the market service modes, strengthening support for the companies with small and mid-cap stocks and further perfecting the blue chip market system.

At the next stage, the SSE will further attract more companies with small and mid-cap stocks to go public and continuously develop the representative index for the board of the promising companies with blue chip shares. The number of the listed companies on the board of the promising companies with blue chip shares is less than 300 at present. As more and more small and mid-sized companies choose to go public at the SSE, the number of the listed companies on the board of the promising companies with blue chip shares will be increased to some extent. Then, the SSE, according to qualified constituents, will compile and release the SSE 580 Index, which will become the benchmark index for the board of the promising companies with blue chip shares.

The perfection of the multi-tiered blue chip market index system

After the 10-year development, the SSE's multi-tiered blue chip market index system has been gradually perfected. The blue chip market index system being planned by the SSE includes two series, namely, the SSE benchmark index series consisting of SSE 180, 380 and planned-to-be-issued 580 Indices, as well as the SSE core investment index series made up of SSE 50, 100 and 150 Indices

In terms of the scales of index constituents, the distribution of the market values for the three boards of the typical companies, rising companies and promising companies with blue chip shares boasts distinctive levels. According to statistics, the board of the typical companies with blue chip shares represented by the SSE 180 Index is characterized by huge market values, with most constituents' market values up to over RMB10 billion and the average market value up to RMB66.5 billion; the board of the rising companies with blue chip shares represented by the SSE 380 Index features small and mid-cap stocks, with most market values less than RMB10 billion and the average market value down to RMB7.2 billion; compared with the above two boards, the market values of the board of the promising companies with blue chip shares further drop.

The above three boards have distinctive valuation levels. Due to the mature development and low valuation of the typical companies with blue chip shares, the price-earnings ratio of the SSE 180 Index comes to about 11; the price-earnings ratio of the SSE 380 Index reaches about 23 due to higher valuation, which reflects the growth of the board of the rising companies with blue chip shares; taking the companies with small and mid-cap stocks as constituents, the SSE 150 Index boasts the price-earnings ratio soaring to about 39 because of the high potential returns and considerably fluctuant performances of these companies.

Different industrial features of the three boards could be seen thorough the industry distribution of index constituents. Traditional industries related to finance, energy, raw materials and others dominate in the board of the typical companies with blue chip shares, while the boards of the rising companies and promising companies with blue chip shares mainly involve emerging industries related to pharmacy, biotechnology, high-end equipment manufacturing, new-generation IT as well as food and beverage, or the listed companies benefiting from consumption upgrading.

In the future, the SSE will serve the financing needs of the enterprises with different sizes and at different development stages by continuously giving full play to the reflection of the blue chip market index system. Meanwhile, the SSE will devote itself to building the blue chip market index system into a channel of communication so as to help all market participants better understand the multi-tiered structure of the capital market of Shanghai and drive the listing of the companies with small and mid-cap stocks at the SSE.