DOW JONES INDEXES SEPTEMBER 2002 CHINA STOCK MARKET IN A GLOBAL PERSPECTIVE Research Report by Executive Summary Sheldon Gao, PhD. China’s stock market has experienced amazing growth since establishing its two Senior Director, Dow Jones exchanges in 1990, although the growth has been uneven and irregular, and the Indexes market remains in the early stages of its development. This report seeks to identify 609-520-4114 the key characteristics of China’s market and how they combine to form the most
[email protected] dynamic and intriguing developing market in the world. The current structure of China’s market is one of its key obstacles to further develop- ment. There are very few stocks that would fit the definition of “blue-chip” trad- ing on China’s mainland exchanges. Whereas most developed markets are domi- nated by a limited number of large-cap stocks, China’s market is cramped by a multitude of small-cap stocks. This feature allows for increased speculation and higher turnover for both investors and indexes, among other problems. A related matter is the reliance of China’s market on external expansion, that is, expansion through the issuance of new shares rather than the appreciation in value of existing stocks. Since these shares generally do not experience sustained growth, often because of market manipulation, they contribute to the dominance of smaller size stocks in China’s market. Ultimately, the current structure is a major obstacle to the creation of viable index-related products in China. Another issue is the fact that, despite the tremendous growth of the stock market, China’s companies are not operating at a high level of profitability.