STOCK MARKETS – COMPARISON AND BENCHMARKING
Market Capitalization – a Broad Comparison.
- Though Chinese stock market became functional only during 1990’s, by and large, has mirrored the feverish growth of the economy.
- Indian stock market have grown faster than the economy post 2005
- The chart above reflects the growth trend post 2010 in absolute numbers. For comparison sake, the values have been converted into $US.
- No specific trend can be inferred from the chart. It is pertinent to mention that, since depreciation of INR during the period of focus has been far more than Yuan, the growth of Indian market appears muted in the chart.
- A more representative comparison would be taking into account of growth of economy and benchmarking with growth in developed stock markets.
- Hence another chart with ratio of GDP to MCap has been plotted and reproduced below:
- From the above, it can be inferred that relative growth of MCap was better in India when compared to China.
- During the first decade of the new millennium, both Chinese and Indian stock markets had minuscule MCaps to GDP ratios.
- While Indian stock market cap started ramping up around 2002- 2005, Chinse market commenced lifting itself up in the second half of the decade.
- Indian stock market touched crossed 100% of GDP value in 2007, in respect of China, the peak also came in 2007 at about 80%.
- Both the markets succumbed to global melt-down commenced in the second half of 2008 before recovering a couple of years later.
CHINESE STOCK MARKET – SALIENT ASPECTS
- China’s stock markets have three main parts. The Main Board Market is composed of Shanghai Stock Exchange(exchange code: SSE) and Shenzhen Stock Exchange(exchange code: SZSE) , both of which are traded by active competitive bidding. The third market is the OTC market.
- Though SSE is an old exchange, it was re-established in 1990 after a prolonged shut down. SZSE was opened an year later in China’s southern province.
- Both SSE and SZSE are amongst the top 10 in the world in respect of market capitalization.
- In 2009, Growth Enterprise Market (GEM) was set up by Shenzhen Stock Exchange. GEM is regarded as China’s second Main Board Market, aiming at providing services for innovative enterprises and high-growth firms.
- Though Hong Hong stock exchanges is technically part of China, it operates independently in line with Hong Kong’s constitution.
- Shanghai stock market is world’s 4th largest exchange in respect of MCap – about $US 4.4Tr.
- The other stock exchange is Shenzhen located in Southern China having a MCap of $US 3.5Tr.
- The salient aspects about both these exchanges are given below:
- Further, while Shanghai Exchange’s major listed cos are China’s state owned Companies, Shenzhen primarily caters to smaller Cos and retails investors.
- In general, however, only less than 7% of Chinese population participates in investment in stocks.
Major Growth Milestones
STOCK MARKET IN INDIA – SALIENT ASPECTS
- In India, the two most prominent stock exchanges are the Bombay Stock Exchange(BSE) and the National Stock Exchange(NSE), both located in Mumbai, the financial hub of India.
- Bombay Stock Exchange Limited is the oldest stock exchange in Asia Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956. The derivative segment of BSE commenced operations in 2001.
Bombay Stock Exchange Limited received its Certificate of Incorporation on 8th August, 2005 and Certificate of Commencement of Business on 12th August, 2005.
- The Exchange has succeeded the business and operations of BSE on going concern basis and its recognition as an Exchange has been continued by Securities and Exchange Board of India(SEBI).
- The National Stock Exchange of India was promoted by leading financial institutions at the behest of the Government of India, in order to promote efficiency, transparency and spread of capital market activity in the country. It was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000.
- Brief comparison of the exchanges are tabulated below:
Major Growth Milestones
- After a steep dip experienced during the fag end of 2017 calendar year, Chinese Market has picked up momentum in the new year rising to the mid-November level. However, it is not clear whether the growth momentum seen in the recent weeks will be sustained especially since ADB has forecast Chinese economy is expected to slow in 2018.
- As reported in the first week in Bloomberg, China has set an official target of 6.5 % growth for the current year. Though this is marginally low when compared to the preceding year, keeping in view the substantial base ( ~$US 12 Tr), this is still a formidable number for the chinse stock market stake-holders.
- Indian stock market has been consistently maintaining the upward growth journey during the past year – logging ~ 30% growth in 2017 – is expected to maintain the tempo albeit at a bit tad slope, as per top global brokerages.
- However, India also has seen inflation inching up owing to steep rise in crude prices during past 3 months, with implications on the bottom-line of many ‘old economy’ stocks.
- On the other hand, recent govt. decision to liberalise FDI in certain sectors like aviation and single brand retail are expected to boost global investors’ confidence.
- Overall, both Indian and Chinese markets are expected to see reflect the uptick in overall global growth nearing the level last seen 10 years ago.
CEO, ERGONOMIX INTELLECTUAL CAPITAL ASSETS