SZSE has announced plans to change the SZSE Component Index. The number of constituent stocks will increase from 40 to 500.
The new index has 52% constituents listed on the main board, 33% on the SME board and 15% on the ChiNext board, which is similar to their respective capitalisations within the Shenzhen market.
The SZSE Component Index was launched by Shenzhen Stock Exchange in 1995. Since then, the market has grown, with the number of listed companies increasing from 120 to 1640.
The current index possessed only 40 constituent stocks and accounted for 2.4% of the total number of listed companies in the Shenzhen market – or 18% of total market capitalisation. With other benchmark indices offering more than 60% market capitalisation coverage, the Shenzhen exchange decided it was time to make a change.
With the changes, the market capitalisation coverage of the index will be increased from 18% to 61%.
The Shenzhen market features a preponderance of small and medium sized companies. The exchange said that the top 400 companies in size cover 50% of Shenzhen’s total market capitalization, whereas the top 50 companies in size cover more than half of total market capitalisation in the Shanghai market.
Previously, with only11 companies listed on the SME board and three on the ChiNext board, the SZSE Component Index structure was skewed towards finance and real estate, which had a 31% weighting in the index, compared to 12% in the total Shenzhen market.
After the reconstruction, the weighting of finance and real estate industries will fall from 31% to 16% and that of the consumer discretionary industry will reduce from 28% to 17%. The information technology sector will rise from 12% to 18%, becoming the heaviest-weighted industry.