Vol. 21 SSE Newsletter November 2014 Highlights: SSE Composite rose by 10.85% in November 2014, while trading volume showed significant increase compared with that of the previous month The Shanghai-Hong Kong Stock Connect program was officially launched, operating smoothly in the first two weeks The Ministry of Finance, the State Administration of Taxation, and the China Securities Regulatory Commission (CSRC) jointly issued the Announcement on Taxation Policies for the Shanghai-Hong Kong Stock Connect Pilot Program and the Announcement on Temporary Corporate Income Tax Exemption for Income from Transfer of Stocks and other Equity Assets Acquired in China by QFIIs and RQFIIs CSRC clarified regulatory arrangements for rights issue by listed companies under the Shanghai-Hong Kong Stock Connect
1. Overview of SSE Market For the last 12 months (December 2013 November 2014), the SSE Composite Index reached the highest at 2682.84 (closing price, hereinafter inclusive) on November 28 th, 2014 and the lowest at 1991.25 on January 20 th, 2014. In November 2014, the index rose by 10.85%. There have been 244 trading days from December 2013 to November 2014. The daily average turnover value was USD 18.13 billion for the period. The single day turnover value peaked at USD 64.06 billion on November 28 th, 2014 and reached the lowest at USD 7.73 billion on January 20 th, 2014. The daily average turnover was USD 38.89 billion for November, which showed a significant increase compared to that of the previous month. In terms of industry-wide accumulated turnover of November 2014, the top 3 sectors were Manufacturing (USD 280.2 billion), Finance & Insurance (USD 179.3 billion), and Transportation (USD 51.5 billion).
For the last 12 months (December 2013 November 2014), the monthly average number of A share new accounts was 290,000. The single month number of new accounts peaked at 558,200 in November 2014, and reached the lowest at 146,500 in May 2014. As of November 2014, the total number of A-share accounts was 94.29 million. In November 2014, the daily average trading volume of ETF was USD 3.44 billion, which represented an increase of 601% compared with USD 490 million in November 2013. The volume reached its highest point at USD 4.59 billion on November 28 th, 2014 and the lowest at USD 2.81 billion on November 25 th, 2014.
2. SSE Updates On November 17 th, The Shanghai-Hong Kong Stock Connect program was officially launched, when the SSE and Hong Kong Exchanges and Clearing Limited (HKEx) respectively held an opening ceremony. At the opening ceremony held at the SSE, Han Zheng, Member of the CPC Central Committee Political Bureau and Party Chief of Shanghai, Xiao Gang, Party Chief and Chairman of the China Securities Regulatory Commission (CSRC), jointly struck the gong to open the market for the first trading day of Shanghai-Hong Kong Stock Connect. Xiao Gang, Yang Xiong, Mayor of Shanghai, and Gui Minjie, Chairman of the Board of Governors of the SSE, delivered speeches at the ceremony. Huang Hongyuan, SSE President, and Charles Li, HKEx Chief Executive, respectively presided over the opening ceremonies in Shanghai and Hong Kong. As of 16:00 p.m. of the opening day, the SSE Composite Index was at 2,474.01, down by 0.19%, and the trading amount was RMB199.265 billion; the Shanghai-HK Stock Connect index was at 2,152.85, down by 0.23%. RMB12.082 billion worth of stocks were bought through Shanghai Stock Connect and no stocks sold; buy orders without transactions but not canceled amounted to RMB918 million; the total used quota was RMB13 billion with none remaining, touching the single day limit. HK$2.238 billion (RMB1.773 billion) worth of stocks were bought through Hong Kong Stock Connect and HK$106 million (RMB84 million) worth of stocks sold. The used quota was RMB1.7673 billion and the remaining quota was RMB8.7327 billion. The smooth operation on the 1st day of the program has built a solid foundation for continuously propelling the two-way opening-up of China s capital market in the future. The SSE will spare no efforts to ensure the smooth operation of the program, and provide a better regulated and more market-oriented investment environment for investors to better protect their interests. On November 26 th, the SSE issued the SSE Business Guidelines for Asset Securitization (the Guidelines), which specify the details in issues including listing and transfer, investor eligibility, and information disclosure of assets-backed securities (ABS). The Guidelines mainly specify the following issues. First, the Guidelines specify the principle requirements and application procedures for listing and transfer. Managers should confirm whether the conditions for listing and transfer have been met before the ABS are issued according to the Guidelines, as well as ensure smooth business flow. Second, the Guidelines strengthen management on investor eligibility, and specify the scope of qualified investors. Third, the Guidelines stipulate the requirement on information disclosure in issuance of the ABS and their period of duration, in order to enhance market transparency. Fourth, the Guidelines clarify the risk control measures and continuing obligations in all business segments of asset securitization in order to protect legal rights and interests of investors. Fifth, the Guidelines specify that, in addition to being transferred as a cash product, ABS is also eligible for collateralized repo according to the relevant regulations of the SSE.
3. Key Statistics of China CPI has risen after decline in the last twelve months, and has been falling again in the past six months. The YoY growth rate of CPI was 2.50% in December 2013, which is the peak during the period. CPI decreased to 1.40% in November 2014, the lowest during the period. From December 2013 to November 2014, M0 generally remained stable, with the only sharp rise to USD 1.21 trillion in January 2014, and remained stable at USD 0.93 trillion in November 2014. M2 increased steadily in the first half-year and has remained stable in the recent six months, rising from USD 17.6 trillion in December 2013 to USD 19.2 trillion in November 2014. Ratio of raised funds on China s exchange market to amount of new loan was volatile. The average in the past 12 months was 7.1%, with the highest at 13.3% in September 2014 and the lowest at 2.5% in February 2014.
4. Updates on China s Capital Market On November 14 th, upon approval by the State Council, the Ministry of Finance, the State Administration of Taxation, and the China Securities Regulatory Commission jointly issued the Announcement on Taxation Policies for the Shanghai-Hong Kong Stock Connect Pilot Program and the Announcement on Temporary Corporate Income Tax Exemption for Income from Transfer of Stocks and other Equity Assets Acquired in China by QFIIs and RQFIIs, which clarify the taxation policy for Stock Connect-related income tax, business tax, and securities (stock) trading stamp tax, and for QFII and RQFII-related income tax. From November 17 th, 2014 to November 16 th, 2017, income in price difference earned by Mainland individual investors investing through the Stock Connect through transfer of stocks listed on the Stock Exchange of Hong Kong will be exempt from individual income tax. From November 17 th, 2014, income in price difference earned by Hong Kong investors (institutional and individual) investing through the Stock Connect through transfer of A Share stocks listed on the will be temporarily exempt from income tax; income in price difference earned by Hong Kong investors (institutional and individual) investing through the Stock Connect through trading of A Share stocks listed on the Shanghai Stock Exchange will be temporarily exempt from business tax; Hong Kong investors trading, inheriting, and donating A Share stocks listed on the through the Stock Connect will be subject to securities (stock) trading stamp tax according to the current taxation rules in Mainland; Mainland investors trading, inheriting, and donating stocks listed on the Stock Exchange of Hong Kong through the Stock Connect will be subject to stamp tax according to the current taxation rules in Hong Kong S.A.R. At the same time, the Announcements clarify other tax policy questions according to the current taxation rules. From November 17 th, 2014, income earned through transfer of stocks and other equity investment assets acquired by QFIIs and RQFIIs in Mainland China will be temporarily exempt from corporate income tax. The tax policies above will have a positive effect on supporting the successful launch of the Shanghai-Hong Kong Stock Connect, and on promoting the two-way opening up and healthy development of the capital markets in Mainland China and Hong Kong. On November 14 th, China Securities Regulatory Commission (CSRC) clarified regulatory arrangements for rights issue by listed companies under the Shanghai-Hong Kong Stock Connect. According to the consultation between the CSRC and the Securities and Futures Commission (SFC), A share listed companies also need to include Hong Kong investors through the Stock Connect for rights issue. The rights issue procedures are as follows. First, submission of application material. Second, issuance of approval document by CSRC. CSRC has the right to determine whether to approve the rights issue according to the law. Third, road show and determination of issue price. A share listed companies conduct road show and determine the issue price after receiving the approval document for rights issue from CSRC. Fourth, raising funds. CSRC and SFC will further improve relevant regulation arrangements according to rights issue practice by listed companies under the Stock Connect in order to protect the legal rights and interests of investors and to ensure stable operation of the Stock Connect.
5. QFII, RQFII & QDII As of November 30 th, 2014, the approved quota for QFII, RQFII and QDII were USD 65.75 billion, USD 47.37 billion and USD 88.67 billion respectively. The newly approved quota for QFII, RQFII and QDII in November 2014 were USD 1.7 billion, USD 0.6 billion and USD 1.3 billion respectively. 6.Shanghai-Hong Kong Stock Connect In November 2014, the average daily quota usage percentage for Shanghai Stock Connect was 31.40%. The daily quota usage percentage on November 17th was 100%, which was the peak during the period. The daily quota usage percentage on November 20th was 17.50%, the lowest during the period. In November 2014, the average daily quota usage percentage for Hong Kong Stock Connect was 3.98%. The daily quota usage percentage on November 17th was 16.80%, which was the peak during the period. The daily quota usage percentage on November 24th was 1.30%, the lowest during the period.
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