Why has the Shanghai Composite Index been around 3000 points?

In the stock market, there is often such a ridicule that the Shanghai Composite Index is "forever young, forever 3000 points", so why does this happen? Next, let's take a look.

Why has the Shanghai Composite Index been around 3000 points?

(1) The sample of Shanghai Composite Index is not comprehensive.

The Shanghai Composite Index does not include the main board, small and medium-sized board, growth enterprise market and other enterprises in Shenzhen, so it cannot objectively describe the overall situation of listed companies in China.

(2) The trend of dilution of Shanghai Stock Exchange Index by new shares.

Before the revision of the Shanghai Stock Exchange Index in 2020, "the index recorded 1 1 trading day of IPO". Due to the strong innovation tradition of A-shares, the 1 1 trading day may be the high price of many listed companies, which will lead to the gradual decline of new shares after they are included in the Shanghai Composite Index, thus dragging down the trend of the Shanghai Composite Index. In view of this, the Shanghai Composite Index will be reformed in 2020. "The newly listed securities ranked 10 in the Shanghai Stock Exchange's daily average market value will be included in the index three months after listing, and other newly listed securities will be included in the index one year after listing." This negative influence will gradually disappear, but before 2020, the index will still be dragged down, and the proportion of issued shares in the Shanghai Composite Index will decrease with the increase of the number of newly included shares.

(3) In the past, the delisting system was not rigorous.

Judging from the formulation of the Shanghai Composite Index, the molecular part is the total market value of the sample. Before June 2020, the Shanghai Composite Index was basically included in the whole sample, but the delisting system in the past was not rigorous, so the increase of the market value of excellent companies (that is, the contribution to the index income) was offset by the decrease of the market value of poor companies, so it was also one of the reasons why the index did not move.

(4) Shanghai Composite Index: excluding dividends and dividend reinvestment income.

The Shanghai Composite Index is a price index, with the total share capital as the weight. When paying dividends, "do not modify the index and let it fall naturally". Because the average dividend yield of Shanghai Stock Exchange Index is around 1%-3%, the long-term compound interest effect cannot be ignored. The actual return of the stock is higher than the apparent increase of the index every year.

(5) The index weight of finance and traditional industries is too high.

The total weight of the top ten shares of the Shanghai Composite Index is 20.47%, and the top ten shares are composed of four banks, two insurance companies, three energy companies and Kweichow Moutai. Financial stocks (especially banking stocks) are undervalued because of their high leverage and weak ability to resist economic downturn; Energy stocks belong to traditional industries, and the growth space is low, which leads to the low long-term valuation and weak trend of the Shanghai Composite Index. Compared with the Shanghai Composite Index, the industry distribution of the Shanghai and Shenzhen 300 Index is more balanced.

To sum up, considering the limitations of the compilation of the Shanghai Stock Exchange Index, the truth of the long-term sustained rise of the China stock market is seriously underestimated.