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On June 29th, the Risk Management Committee of the Board of Directors of Shenzhen Stock Exchange (SZSE) convened its first meeting in 2018, with more than 20 members and commissioners from market institutions present. This is the first meeting held by the Risk Management Committee after the revision and implementation of Measures on Administration of Securities Exchanges. At the meeting, the risk management conditions of SZSE were briefed, the current market situation analyzed and the prevention and resolution of market risks discussed in depth, with the attendees sharing positive suggestions on the topic.
It is generally acknowledged at the meeting that the current market situation is radically different from that of 2015, based on the recent market trends. The process of de-leveraging has been continuously advanced ever since 2015, resulting in a significantly lowered level of inside leverage and a 60% drop in the highest point of securities margin. On the other hand, the OTC funding behavior is fairly curbed to wipe off market risk substantially, and the risk base number becomes clearer.
It is pointed out at the meeting that in terms of both the performance of listed companies and the valuation, the market is equipped with a steady operation foundation, with positive and favorable factors building up.
On the one hand, the performance of listed companies continues to improve, with cash dividend hitting a record high. For the first quarter of 2018, the SZSE-listed companies achieve a total revenue of RMB 2.5 trillion, which is a 17.5% year-on-year growth. The net profit reaches RMB 184.5 billion, a 24.6% year-on-year increase. According to the Shenzhen and Shanghai market data from the semiannual performance forecast released currently, 72% of the companies forecast performance increase and 40 % of the companies predict doubled year-on-year net profit. In 2017, the total amount of cash dividend of the SZSE-listed companies exceeds RMB 220 billion, up by 17% from the previous year, and the total dividend amount hits a record high.
On the other hand, the market valuation is at a record low, and the structure of valuation has been improved significantly. As of June 28th, the TTM of CSI 300 Index is 11.6, which is 30% lower than that of CAC40 Index, 33% lower than that of Nikkei 225 Index and accounts less than 50% to that of S&P 500 Index. Comparing to the low point previous to 27th January 2016, the ratio of low valuation stocks and market value surges in both Shenzhen and Shanghai markets. The ratio of stock market value under TTM 20 rises from 38.3% to 47.9%, while the ratio of market value higher than TTM 50 and deficit stocks market value drops from 35.5% to 18.9%.
Next, the Risk Management Committee will take full advantage of its closeness to the market, broadly gather the consensus of the members and market institutions and further propel the the perfection of SZSE’s risk management system. By strengthening risk monitoring, warning and coping, the Risk Management Committee is determined to fight the tough battle of major risk prevention and resolution.
