Major index samples ushered in regular sampling!

On the evening of November 25, the Shanghai Stock Exchange and China Securities Index Co., Ltd. announced that they will adjust samples of indices such as SSE 50, SSE 180, SSE 380, and Science Innovation 50, and China Securities Index Co., Ltd. will adjust samples of indices such as Shanghai and Shenzhen 300, China Securities 500, and China Securities 1000. The adjustment plan will officially take effect after the market closes on December 8, 2023.

Many mainstream broad-based indices such as the Shanghai Stock Exchange 50, Shanghai and Shenzhen 300, and Science Innovation 50 are about to be adjusted

In this semi-annual sampling, the Shanghai Stock Exchange 50 Index replaced 5 samples. Five companies, China Shipbuilding, China Taibao, Bank of China, Haiguang Information, and SMIC, entered the index, and Baogang Co., Ltd., Fosun Pharmaceutical, Wingtai Technology, CITIC Construction Investment, and Hesheng Silicon moved out of the index.

The Shanghai Securities 180 Index replaced 18 samples and added 18 new companies, including Jianghuai Automobile, Yifeng Pharmacy, and Cambrian; it transferred out Jindi Group, Zhongtian Technology, Guolian Securities, etc.

The Shanghai Securities 380 Index replaced 38 samples and transferred to 38 companies including Guojin Securities, Keda Manufacturing, and SDIC Power; and transferred to Gree Real Estate, Huaxia Happiness, Guangming Dairy, etc.

The Science Innovation 50 Index, on the other hand, replaced one sample, transferred to Baili Tianheng-U, and transferred out Company No. 9 - WD.

The Shanghai and Shenzhen 300 Index has also undergone a new round of adjustments. Fourteen samples have been replaced in this adjustment. Individual stocks such as China Resources 39, Haiguang Information, Zhongji Xuchuang, and Cambrian entered the index. At the same time, individual stocks such as Meijin Energy, Yunda, Sunwoda, and General Health were transferred out.

The China Securities 500 Index also replaced 50 samples at the same time. New indices such as Yunda Shares, Kaiying Network, China Public Education, CITIC Metals, Geke Micro, Baiyun Airport, and Junshi Biotech were also excluded. Individual stocks such as Xinbao Shares, Zhongji Xuchuang, Guangsheng Nonferrous Metals, and Cambrian were also excluded.

Shanghai and Shenzhen 300 increase communication service industry allocation

The China Securities Index Company said that after this sample adjustment, the main index sample focused more on the fields of transformation and upgrading of the real economy and technological innovation. The sample size of industries such as information technology, industry, and communication services has increased, and the representation of the index has further increased.

Among them, the sample size of the information technology industry in the Shanghai and Shenzhen 300 Index increased by 3, and the weight increased by 0.25%; the sample size of the communication service industry increased by 1 net, and the weight increased by 0.35%. The sample size of the industrial sector in the China Securities 500 Index increased by a net 8, and the weight increased by 1.01%. In the China Securities 1000 Index, there was a net increase of 10 samples in the information technology industry, and the weight increased by 0.74%. The Shanghai and Shenzhen 300, China Securities 500, and China Securities 1000 indices revitalized scientific and technological innovation. The adjusted science and technology innovation board and GEM samples were 50, 106, and 320, respectively, with weights of 14.24%, 11.11%, and 31.69%, respectively.

After sample adjustments, judging from market value coverage, the Shanghai and Shenzhen 300, China Securities 500, and China Securities 1000 indices accounted for 50.10%, 15.57%, and 14.92% of the total market value of the Shanghai and Shenzhen markets, respectively. The Shanghai and Shenzhen 300 Index sample accounted for 59.93% of the Shanghai and Shenzhen market revenue in the first three quarters of 2023, and net profit accounted for 78.46% of the Shanghai and Shenzhen markets; the China Securities 500 Index sample accounted for 15.83% of the Shanghai and Shenzhen market revenue for the first three quarters of 2023, and net profit accounted for 10.38% of the Shanghai and Shenzhen markets. The median total market value of the China Securities 1000 Index sample was 10.8 billion yuan, and the characteristics of the small market were prominent.

Judging from the valuation, according to the closing price on November 22, the adjusted rolling price-earnings ratios of the Shanghai and Shenzhen 300, China Securities 500, and China Securities 1000 indices were 10.93 times, 16.86 times, and 21.85 times, respectively.

What's the impact?

The so-called index sampling is to adjust the constituent stocks within the index, remove companies that no longer meet the standards according to the established index preparation plan, and transfer some new listed companies to maintain the representative and investability of the index.

Take the A-share market as an example. Mainstream indices are generally adjusted regularly every six months, taking effect on the next trading day of the second Friday in June and December, respectively. Due to rapid changes in stock fundamentals in some sectors, some indices will be adjusted on a quarterly basis (such as the Science and Technology Innovation 50 and Beijing Stock Exchange 50 Index). Furthermore, every time the index is adjusted, a small number of constituent stocks will be replaced according to the rules. Judging from previous implementation, the sample adjustment ratio generally does not exceed 10%.

According to an analysis by CICC, the constituent stocks included in the index had excess earnings 10 days after the adjustment announcement. The sample stocks included in most indices had relatively good excess earnings performance after the announcement date, but the duration was short, and the inclusion effect gradually weakened after 10 days.

Furthermore, the component stocks that have excluded the index will have a certain negative effect after the adjustment announcement. The exclusion of sample stocks from most indices had a certain negative effect on the index after the announcement date. Since A-shares lacked a shorting mechanism, the exclusion effect lasted relatively longer than the inclusion effect.