Analyzing China's Declines

China's Shanghai Composite is down 37.5% year to date, however, the average stock in the index is down 32.44%. As a price weighted index, this means that the largest stocks are the ones dragging the index down. We broke the 888 stocks in the index into deciles based on market cap at the start of the year and calculated the average year to date performance of stocks in each decile.

As shown in the chart below, the decile of the largest stocks are down an average of 37.88%, while the rest are all down between 28% and 34%. We also provide a table of the 25 largest stocks in the index along with their year to date performance and their market caps at the start of the year. PetroChina (PTR) was more than double the size of the 2nd largest stock, and it is down 46% in 2008. Luckily in the US, the largest stock (XOM) is down just 16 bps on the year.

click to enlarge images

Comments

[rlirph]

Every one knows that China is a third world country. China's stock market is an emerging market. May be the following numbers will give a more balanced picture.

Date Shanghai Composite Index
1/4/2006 1161
1/3/2007 2675
10/16/2007 6124 (intraday high)
4/22/2008 2991 (intraday low)
4/24/2008 3583 (closing)

The market had gone up 5.5x from 1/4/07 to 10/16/07. Even one takes the intraday low on Tuesday(4/22/08) the market had gone up 2.5x in 2 years 4 months. Is that bad?

When one invests in an emerging market one can have great returns with high risk. The returns also come with great volatility. Just look at the 14% gain today and yesterday.

In 1973 the Hong Kong Hang Seng Index dropped from 1100 to 153 in a year time. Now the Hang Seng Index is 25,000. China is similar to Hong Kong in early 1970's - lots of growth, lots of volatility but also lots of profits if one can take the ride. But to compare China's stock market with US stock market is both naive and ludicrous!

[huangthomas]

"China's Shanghai Composite ...... As a price weighted index.....". Are you sure? It is a price weighted index as Dow Jones Industrial? Then you talk about market capitalization. What are you talking about? Shanghai stock exchange index use total number of stocks of the company, alittle more than one-third is free float. CSI 300 use only free float to calculate the index.