Eligible Stocks:criteria, adjustments & advantages

Eligible Stocks:criteria, adjustments & advantages

Eligible Stocks for Northbound Trading

At this stage, Shanghai Stock Connect trading is restricted to a range of eligible A Share stocks. Other products such as ETFs, bonds and B shares will not be included. SSE listed stocks that are not RMB denominated or are on the risk alert board will also not be included. An eligible stock must be:
√ Constituent stock of the SSE 180 Index and/or
√ Constituent stock of the SSE 380 Index or
√ A-listed stock that is not included in the above indices but is dual listed in H-share market

Adjustments of Eligible Stocks for Shanghai Stock Connect Trading

There will be an addition to the list of Eligible Stocks in the following scenarios:
√ An SSE-listed stock is removed from the risk alert board and meanwhile remains a constituent stock of SSE 180 & SSE 380 or an H-listed stock.
√ An SSE-listed stock becomes a constituent stock of SSE 180 or SSE 380.
√ A mainland company becomes dual listed either because it seeks to be A-listed or H-listed or both at the same time. For its stock to be added, it must pass the stabilization period required by relevant regulatory bodies.

An Eligible Stock will be removed if:
√ The stock is no longer a constituent stock of the relevant indices or 
√ The stock is moved to the risk alert board or
√ For dual listed stock, it is no longer traded on SEHK
In the case of a removal, investor would be able to sell and NOT buy this stock.

Advantages of Investing In the Eligible Stocks

1. Topnotch Blue chip Companies

The Shanghai Stock Connect trading will enable international investors share the value of China’s strong economic growth and invest in 568 blue-chip companies that are leaders in 28 industries. The corresponding stocks are highly liquid, with average daily turnover making up 80% of market total.

Top 10 Listed Companies by Market Cap (2013 year-end, RMB 100 billion)

  Pretrochina          Code:601857 Market Cap:12484
2:   ICBC                    Code:601398 Market Cap:9443
 ABC                     Code:601288 Market Cap:7293
 Bank of China           Code:601988 Market Cap:5123
 Sinopec                 Code:600028 Market Cap:4079
 China Life              Code:601628 Market Cap:3151
 China Shenhua        Code:601088 Market Cap:2609
China Merchants Bank     Code:600036 Market Cap:2246
 Ping An Insurance   Code:601318 Market Cap:1997
 Minsheng Bank          Code:601166 Market Cap:1932

  SSE Eligible Stocks
Total Number of Stocks 568
Market Share( as a percentage of SSE total market cap) 90%
Average Daily Turnover( as a percentage of market ADT) 80%

2. Advantageous Industry Coverage

In terms of industry structure, the SSE Eligible Stocks represent companies that operate in a more diversified industry profile than those of the Hong Kong stock market. Industries like food & beverage, healthcare, media, travel & tourism and consumer staples are currently under-represented in the H-share market, but include some of the strongest and most worth-investing companies in the A-share market. Investors, through Shanghai Stock Connect trading, are thus able to invest in companies such as Moutai under food & beverage industry etc. Below is the industry distribution information of all SSE Eligible Stocks:

Industry Number of Companies Total Market Cap
(billion RMB)
Market Cap Percentage
Banking 14 5,323.66 32.22%
Mining 27 2,050.74 12.41%
Non-bank Finance 21 1,456.86 8.82%
Chemicals 39 943.89 5.71%
Transportation 45 724.91 4.39%
Utilities 32 614.49 3.72%
Healthcare 41 553.99 3.35%
Automotive 22 483.24 2.93%
Property 42 456.78 2.76%
Building & Decorations 21 441.96 2.68%
Nonferrous Metal 25 434.81 2.63%
Food & Beverage 17 382.31 2.31%
Machinery 32 355.38 2.15%
National Defense 14 320.65 1.94%
Electrical Equipment 25 301.39 1.82%
Media 17 272.16 1.65%
Trade & Commerce 30 213.65 1.29%
Construction Materials 14 170.54 1.03%
Metal 8 158.39 0.96%
Computers 13 149.29 0.90%
Electronics 12 133.41 0.81%
Telecommunications 7 127.48 0.77%
Textile & Apparel 8 91.80 0.56%
Agriculture 11 76.52 0.46%
Home Appliances 5 76.24 0.46%
Light Industry Manufacturing 11 75.91 0.46%
Conglomerate 10 69.88 0.42%
Leisure Service 5 60.01 0.36%
Total 568 16,520.32 100.00%

3. Beneficial Dividend Policy

The listed companies also have a good performance in cash dividend payout. The number of listed companies paying out cash dividend and the amount of cash dividend payout are increasing. Among the 957 listed companies who published their most recent annual reports, 674 companies have proposed their cash dividend payout plans, that accounts for 70.43% of all listed companies. The total amount of planned cash dividend payout reaches RMB 670.7 billion, higher than RMB 595.9 billion in 2012. The total dividend payout rate is 34.62%, still a record high.

In addition, the stability and predictability of cash dividend payout are improved. The number of listed companies paying out cash dividend for three consecutive years is 490, more than 25% increase from that of 2013. The number of listed companies with dividend payout ratio higher than 30% for three consecutive years is 185. There are 40 companies explicitly stipulating in their articles of association that cash dividend payout ratio shall be higher than 30%.