Introduction
The Shanghai Stock Exchange (SSE) is based in Shanghai China and is the fourth largest stock exchange in the world. It has a market capitalization of $US 7 trillion in 2021. The stock exchange is more than 100 years old but was re-established in November 1990. The stock exchange is operated by China Security Regulation Commission.
Whereas, the Hong Kong Stock Exchange is based in Hong Kong and is the largest bourse in the world in terms of market capitalization as it has recently surpassed Chicago-based CME. The market capitalization of the Hong Kong Stock Exchange was HK$ 47 trillion in 2020. It is one of the fastest-growing stock exchanges in Asia and is more than 130 years old as it was established in 1891.
Listed companies
The Shanghai and Hong Kong stock exchange varies a lot from each other in terms of listed companies. The Shanghai Stock exchange has 1860 listings in 2021 whereas the Hong Kong stock exchange has 2538 listings in 2021. This is why the market capitalization of the Hong Kong stock exchange is much bigger as compared to the Shanghai stock exchange as it has more listed companies.
The major investors in Shanghai Stock Exchange are retail, pension funds, and banks. Hong Kong Stock Exchange has a deeper pool of services as compared to Shanghai as many accounting, law, insurance, and other professional firms are well-established.
Regulations
The Shanghai Stock Exchange is heavily regulated by the Chinese government. On the other hand, Hong Kong Stock Exchange is market-oriented and the government there ensures laisses-faire. Earlier, only Chinese nationals and Chinese-owned companies were allowed to invest in the Shanghai Stock Exchange. This is why the listed companies and market capitalization were low in there. Whereas, all foreign investors were allowed and encouraged to invest in Hong Kong Stock Exchange.
Following the Shanghai-Hong Kong connect program in 2014, more foreign investors and foreign-owned companies are allowed to invest in Shanghai Stock Exchange. Earlier only 7% of the Chinese population had investments in China’s largest stock exchange. The 7% owned 85% of the shares in the Chinese market. Now the situation is changing and more foreign investors are taking interest in Shanghai Stock Exchange.
Business model and environment
The Shanghai Stock Exchange has a volatile environment as compared to Hong Kong Stock Exchange. The shares in Shanghai Stock Exchange are owned by few firms and people that lead to more trading. This makes the stock market more volatile. The Hong Kong Stock Exchange is more stable and the ownership of stock is private in comparison to Shanghai Bourse. As both the Stock Exchange comes under Chinese territory, the business model nowadays is common.
The Chinese government introduced a Shanghai-Hong Kong connect program in 2014 that linked both the stock exchange houses. This connectivity would ensure more stable and sustainable growth. Both the houses would grow in tandem.
Conclusion
We can infer from the above discussion that Shanghai and Hong Kong Stock Exchange are poles apart from each other. The difference in them is due to multiple factors. The government intervention is very high in Shanghai Stock Exchange in comparison to Hong Kong. The Hong Kong Stock Exchange is now the largest bourse in the world and is better in terms of market capitalization and no. of listed companies as compared to the Shanghai Stock Exchange.
The recent linkage between these two houses promises a strong future for both. The connect program would lead to more stability and sustainability. Keeping in view the recent trends, the plan of the Chinese government is spot on.
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