Constituent stocks in Shanghai Composite SSEC (or called SSE) Index, by definition, include all A-shares and also B-shares listed on the Shanghai Stock Exchange. A-shares are traded in renminbi RMB (also called CNY or Yuan) and only limited to domestic investors and also QFIIs (Qualified Foreign Institutional Investors), while B-shares are available in USD for both domestic and foreign investors. SSEC Index is calculated and weighted by the issued share capital of its constituent stocks.
In 2012, Shanghai Composite SSEC Index rebounded by +3.2% YoY to 2269 at year-end. This represented its first annual rebound since 2009 and also a 3.9% deviation from our own SSEC Index target level of 2358, however, we (again) did predict the direction (upward) accurately.
We, Mr China, now publish our latest Shanghai Composite SSEC (or called SSE) Index target as 2310 in 2013, a +1.8% YoY gain from 2269 since end-2012. If we do predict this trend correctly (again), it will then be the second consecutive SSEC annual rebound.
Shanghai Composite SSEC Index consists of a number of industry weightings such as Financials, Properties, Energy, Industrials, Consumer Discretionary, Consumer Staples, Materials, Utilities, Healthcare, Information Technology, and Telecommunication Services, etc. Our independent Chinese securities market expert team forecasted fair values of above industry weightings and then put them into the benchmark Shanghai Composite SSEC Index formula. Upon calculations by the expert team, our 2013 Shanghai Composite SSEC (or called SSE) Index target should be 2310. Major assumptions of our forecast are:
(i) In 2013, Chinese economic growth rate will continue to slow-down. See Reference: our 2013 China GDP target.
(ii) Inflationary pressure and inflation expectation in 2013 will remain relatively stable. See Reference: our 2013 China CPI target.
(iii) A key problem about non-freefloat shares being unleashed will continue to impair the overall performance of PRC A-share market. See Reference: Problem of Unleashing Non-freeFloat A-Shares.
(iv) By looking at our historical statistics, we see a high 80% probability that the yearly trend of Shanghai SSEC Composite Index usually follows its monthly trend of January for each year. Since 2013 SSEC Index January monthly trend was positive (up +5.1% MoM from 2269 to close at 2385 in January), we therefore expect it is quite possible that performance of 2013 SSEC Index will follow this upward trend until end-2013.
As reference to our own rating system, current benchmark Shanghai Composite SSEC (or called SSE) Index level of 2301 should be rated as "reasonable" (as of end-May).
Current Shanghai Composite SSEC Index Spot Chart
From a longer-term technical point of view, Shanghai Composite SSEC Index has not been able to shot over its important barrier of 4421, which is the 61.8% (Fibonacci Golden Ratio) rebound level from the previous bottom level of 1665, some technical analysts may simply think that it should still be a bear market and a bull market has not come. We, however, do not recommend applying any such technical analysis to the A-share market due to the particular impacts of non-freefloat shares being unleashed and also the stated-controlled administrative policy by the Chinese central government.
Please always remember: In country adopting central planned economy like China, policy factors must always be considered and policy risks can never be overlooked. The 2310 target value shall now be just treated as preliminary release of our 2013 Shanghai Composite SSEC Index target. We, Mr China, will monitor closely the A-share market development and may possibly make necessary revision changes later on. That said, we may upgrade/downgrade our own Shanghai Composite SSEC Index target after this preliminary release if the market valuation of SSEC stock constituents should change.
Additional Post(s) about our PRC Stock Targets:
Summary Table of All Our Stock Targets for PRC
2 Comments:
Hi
I am a interested in investing in H-shares in Hong Kong. I like reading your blog about the Shanghai Market because it has so much information.
May I ask if you have an idea or an estimate on when all non-free float shares will be released or an estimate on how much non-free float shares would still be released in the future?
Thanks sincerely for your support on our blog.
We doubt if you need to worry too much about non-free float H-shares in Hong Kong. Unlike A-share market in mainland China, non-free float H-shares in Hong Kong can usually be absorbed by other foreign institutional investors quickly after unfreezing.
Non-free float A-shares in mainland China, however, can still be a problem because of the limited quotas of QFIIs (Qualified Foreign Institutional Investors). Nevertheless, unfrozen A-shares of a listed company do not necessarily have a direct impact on corresponding H-shares in Hong Kong since the number of tradable H-shares shall remain unchanged.
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