Suitable for Index Investment in the Growth Enterprise Market “The three major indices of the Shanghai and Shenzhen main board, SME board, and Growth Enterprise Market have been separated. Investors will be able to better grasp the overall capital market.” Analysts stated that as of May 2010, there were a total of 984 listed companies on the Shenzhen Stock Exchange, with a total stock market value reaching 6.13 trillion yuan and a circulating market value of 3.55 trillion yuan. Among these, there were 485 main board listed companies (including B shares), 413 SME board listed companies, and 86 Growth Enterprise Market listed companies. Additionally, 65 companies were listed on the share quotation transfer system.
Analysts also noted that in January 1995, the Shenzhen Stock Exchange released the Shenzhen Component Index to replace the Shenzhen Composite Index, making it the main index of the Shenzhen market and establishing the characteristic of the Shenzhen series index centered on the component stock index. In subsequent years, the exchange also released the first index specifically designed for investment purposes, the Shenzhen 100 Index, and the Grand Tide Series Index, which was the first cross-market index released through the market information system domestically. In June 2005, the SME Board Index was released.
It is worth noting that the Growth Enterprise Market Index will form the "SME Index" together with the SME Board Index. SMEs, as the smallest units in the national economy, are the most sensitive to market risks and have the strongest innovation capabilities and growth potential. The operating conditions of SMEs not only serve as the "barometer" of the national economy but also act as the "strong engine" for economic structural adjustments. Since the birth of the SME board six years ago, the number of listed SMEs has exceeded four hundred, covering different economic sectors across China. As the number of listed companies on the Growth Enterprise Market continues to increase and the coverage expands, they will independently become the "thermometer" of Chinese SMEs, allowing investors to better understand the state of the national economy.
Currently, some fund companies are developing fund products related to the Growth Enterprise Market Index. Industry opinions suggest that compared to large boards, the SME board and Growth Enterprise Market are more suitable for index investment. More importantly, after a period of operation, the Growth Enterprise Market has gradually become more rational. With the acceleration and stable expansion of the market, the number of Growth Enterprise Market companies has effectively increased, and the irrational phenomenon of the entire market rising and falling together has come to an end. High-quality companies have received relatively high valuations, while poorer companies' prices have further approached zero. Especially against the backdrop of recent market adjustments, the issuance of new Growth Enterprise Market stocks and the phenomenon of chasing highs on the first day have been curbed. According to financial data from the 2009 annual report and the closing price on May 31, 2010, the average dynamic P/E ratio of the Growth Enterprise Market is currently 75 times, a significant decrease from the initial level of 100 times. Considering the growth potential of Growth Enterprise Market enterprises, its dynamic P/E ratio has basically returned to a relatively reasonable level.
Since its launch over half a year ago, dozens of Growth Enterprise Market stocks have had inconsistent price movements, lacking a unified "ruler." To assess the overall development trend of the sector, some securities firms have had no choice but to compile their own Growth Enterprise Market indices. Today, the two Growth Enterprise Market indices officially released by the Shenzhen Stock Exchange resolve this issue. These two indices are the Price Index and the Revenue Index. The Growth Enterprise Market Price Index serves as the main index, abbreviated as "Growth Enterprise Market Index," with the code "399006." The Growth Enterprise Market Revenue Index is abbreviated as "Growth Enterprise Market R," with the code "399606." The base date for the Growth Enterprise Market Index is May 31, 2010, with a base point of 1000.
The clarification of the multi-level main index system architecture in the capital market is beneficial to changing the current structure of index fund products. Analysts noted that so far, the structure of domestic index fund products remains relatively monotonous, with most investment targets limited to large-cap stocks ranked in the top 20%. Other thousands of companies are excluded, inevitably leading to insufficient diversification of investment risks and difficulty in achieving market average returns. Vigorously developing index funds with small and medium-sized growth stocks as investment targets will complement existing index funds. Since the release of the SME 100 Index in 2006, the cumulative return has reached 285.4%, and the Huaxia SME ETF tracking this index has performed excellently. Since the establishment of the fund on June 8, 2006, up to March 18, 2010, the historical net value growth rate has been 172%, ranking 41st among 200 open-end funds with comparable data.
Another significant meaning of the launch of the Growth Enterprise Market Index is that the multi-level index system architecture of China's capital market has taken shape. Starting today, the architecture of the multi-level index system can be divided into four categories according to market levels: cross-market, dual markets, SME board combined market, and Growth Enterprise Market combined market; and into various categories such as core indices, scale indices, style indices, industry indices, theme indices, and composite indices.
Since the opening of the SME board, the number of listed companies, total market value, circulating market value, and trading volume in the Shenzhen Stock Market have continued to rise. In 2009, the Shenzhen Stock Exchange ranked first globally with 90 IPOs. Compared to December 2004, as of May 2010, the number of listed companies, total market value, and circulating market value of the Shenzhen Stock Exchange have increased by 84%, 455%, and 719%, respectively. Due to most newly issued companies being listed on the SME board and Growth Enterprise Market, along with these companies having higher growth expectations, investor attention to the Shenzhen market has continued to rise. Since the beginning of 2010, the daily average turnover rate of the Shenzhen market has been close to 2.5%, significantly higher than the average level of both markets. This improvement in the index system better adapts to market development changes and meets investor needs. The Growth Enterprise Market Index will reflect the operational status of Shenzhen-listed companies together with the SME board index and the main board index.
In March this year, the Shenzhen Stock Exchange announced the SME 300 Index to address the issue of declining coverage rates due to new stock listings affecting the SME 100 Index. This month, the Shenzhen Stock Exchange also released the SME Value Index and the SME Growth Index, enriching the SME index system. Today, the announcement of the Growth Enterprise Market Index is just the beginning, and in the future, it will surely follow the path of the SME board index, continuously improving with market changes. In such circumstances, the variety of related index products will also significantly increase.
When the number of Growth Enterprise Market listed companies reached 50, there was already a view suggesting that the Growth Enterprise Market Index should be launched. However, at the time, the supply of Growth Enterprise Market companies was insufficient, investment enthusiasm was low, and stock price fluctuations were intense. Launching the index would result in a "loss of reality" situation. Looking back now, the timing for launching the Growth Enterprise Market Index could be considered ripe. As of May 31, a total of 88 Growth Enterprise Market companies have been issued, with 86 listed, a total market value of 370.824 billion yuan, accounting for 6.3% of the total market value of Shenzhen A-shares; and a circulating market value of 83.469 billion yuan, accounting for 2.47% of the circulating market value of the Shenzhen A-share market. With the rapid advancement of IPOs in the Growth Enterprise Market, the number of issued listed companies will soon exceed 100, meeting the sufficient sample basis required for launching the index.
The above analysts pointed out that overall, listed SME companies have the characteristics of high risk and high returns. If long-term passive investment is conducted through index tools, it is believed that they can avoid disadvantages and pursue advantages.
Industry professionals generally believe that the launch of the Growth Enterprise Market Index is timely and signifies that the Growth Enterprise Market and the SME board are increasingly valued by investors, enhancing the position of the Growth Enterprise Market in the entire stock market.
Related thematic articles:
Fund companies target high-growth stocks, and Growth Enterprise Market index funds are imminent.