Silence at the Stock Exchange
Visiting the Shanghai stock exchange was a little like visiting a ghost town that continued to operate long after all the people had deserted it.
It was midday on Wednesday in late May. The market had been open for at least five hours. The composite was slowly rising above the previous day’s flat performance. By midday, the index increased its value by 0.83 percent. Before the day’s end, the index would rise by 44.36 points, or 1.71 percent, from 2,601.24 to 2,632.93. Analysts later credited market heavyweights—oil, gold mining, and equipment-making companies—for the slight rise.
Given the movement on the exchange, one might expect to some trading action on the exchange floor. The New York Stock Exchange, for example, conjures up images of rowdy floor room traders swapping bids for asking prices. There is no such scene in Shanghai. None at all. In fact, the exchange floor is deadly silent.
Upon meeting a representative of the exchange in the lobby, our group started our tour of the building. We moved up an escalator, around a large hallway, and into a glass-paneled overlook of the exchange floor. All was still and quiet on the other side of the glass. The floor was filled with rows of computer monitors that sit neatly upon white desks. The desk chairs were all gone as were the people who once sat at them. When were they last in use?
The building’s hallways were also vacant. Unmanned monitors outside the exchange were originally posted to allow traders to check the price of stocks. Today they show only blank screens. Where were all the people?
Our Chinese host explained that the transactions occur online. “They work from their computers in there offices,” he said. “Everything is handled online.”
Despite the silence, the exchange was fully operative. Two large screens on either side of the exchange drew the eye to them. Their red, yellow and green lights showed the day’s movement of prices of the lead stocks. The room looked impeccably clean. The floor was spotless, and sunlight shined brightly through curved window panels. The whole design looked modern, as if it was built within the past decade or two.
Background
China reopened the Shanghai Stock Exchange in 1990. Today, the floor serves not as a meeting place for hard trading, but as a place for tourists to witness the electronic movements of China’s major financial hub. The Chinese want to make Shanghai the financial center of the East. It is one of three exchanges in China. Shenzen and Hong Kong are home to the other two exchanges.
Size: In terms of domestic market capitalization, the Shanghai Stock Exchange is worth $2,142,756. It is smaller than the Tokyo Stock Exchange, valued at $3,478,602, slightly larger than the Hong Kong exchange, valued at $1,945,517.7, and slightly larger than the total value of India’s two exchanges (the Bombay and National Stock exchanges), $2,101,681. Shanghai’s exchange is smaller than but comparable to the London exchange, worth $2,560,491, and the NASDAQ, $2,847,535. (Source: World Federation of Exchanges)
The government is the primary shareholder on most companies listed on the exchange. Our tour guide seemed surprised to have to explain to our group that, China has a long history of being a communist country.
Foreigners are generally not allowed to invest directly in the Shanghai market, due in part to China’s control of its capital accounts balance. (Foreigners can invest in B-shares, but they are restricted from investing in A-shares. See Investopedia.)
But those tight controls could soon change. According to Bloomberg News, China has indicated it will “raise the amount foreign funds can invest in stocks by 25 percent to $1 billion.” Furthermore, the government is also ready to allow foreign companies to list on the exchange. (See The Australian Business News). It is too soon to know how these changes might impact the investment climate in China.