Shanghai and Bombay stock exchanges – different aspirations?

Posted by Reading Time: 2 minutes

2point6billion has an excellent post today comparing the Shanghai and Bombay stock exchanges. With so much focus lately on the Chinese stock market – it’s up, it’s down, it’s up again – it’s nice to see an article that doesn’t mention bubbles and corrections for once. Some choice excerpts:

The Bombay Stock Exchange (BSE) – is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai’s Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as ‘The Native Share & Stock Brokers Association’. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act.

The Exchange is known for tough listing regulations and a strict adherence to transparency, giving it an well deserved reputation internationally. This is demonstrated in it’s recent history and stability – over the past 15 years there have been only 22 changes of it’s top 100 listed companies. In total, the BSC has a market capitalization of US$900 million spread around 3,500 listed companies.

The Shanghai Stock Exchange (SSE) was founded on Nov. 26th,1990 and in operation on Dec.19th the same year. It is a non-profit-making membership institution directly governed by the China Securities Regulatory Commission(CSRC). The SSE bases its development on the principle of “legislation, supervision, self-regulation and standardization” to create a transparent, open, safe and efficient marketplace. The SSE endeavors to realize a variety of functions: providing marketplace and facilities for the securities trading; formulating business rules; accepting and arranging listings; organizing and monitoring securities trading; regulating members and listed companies; managing and disseminating market information.

After several years’ operation, the SSE has become the most preeminent stock market in Mainland China in terms of number of listed companies, number of shares listed, total market value, tradable market value, securities turnover in value, stock turnover in value and the T-bond turnover in value. The total market capitalization of SSE is US$350 billion with about 845 listed companies.

In essence then, the Shanghai Stock Exchange appears to be roughly four times larger than it’s Indian counterpart in market cap, with it’s listed companies raising also about four times as much money. So why then are Indian companies apparently so much further ahead in global positioning and acquisitions than their Chinese counterparts?

The article goes on to explain why Chinese companies have such a hard time “going global” as compared to Indian companies.

So why have Indian listed companies – with less than four times the assets – outstripped Chinese listed companies in M&A activities? The much lauded “The Chinese are coming!” in terms of international anticipation of Chinese outbound investment turning up to buy international businesses has not occurred.

I can identify two major components that prevent Chinese companies “Going Global” – and these are linked to the roles and management of the respective stock exchanges, being the theme of this article. Others include communication abilities, a lack of quality management in Chinese firms, domestic competition brought on by WTO membership and many other factors. However it is the fundamental understanding of the role and function of a stock exchange that I refer to.