The Shanghai and Shenzhen stock exchanges plan an index of 300 companies across both markets, giving investors their first combined measure to gauge the performance of the domestic shares of the country's biggest companies.
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The Shanghai Shenzhen 300 Index will open on Friday, tracking 300 companies with yuan-denominated Class A-Shares, the exchanges said in a statement on their Web sites.
The measure may provide the basis for developing index futures to enable investors to hedge, said Boshi Fund Management Co's Zhang Linwei.
"China's markets need to have hedging products if the government is serious about long-term growth," said Zhang, who helps manage 1.1 billion yuan (US$133 million) at Boshi in Shenzhen.
Having derivative products would help investors hedge against losses. The Shanghai A-Share Index has dropped a third in the past 12 months.
The Shenzhen benchmark has slumped 36 percent in that period. The Morgan Stanley Capital International Emerging Markets Asia Index has added 5.5 percent in that time.
The index makes "it more convenient for investors to gauge overall market sentiment," the exchanges said.
The companies making up the index had a combined market value of about 2.18 trillion yuan (US$263 billion) at the end of March, the statement said.
That accounts for about 65 percent of the two markets, which together are Asia's fourth biggest. Japan, Hong Kong and Australia are bigger by market value.
The 300 proposed member companies had a combined net income of 125 billion yuan (US$36 billion) for the first three quarters of last year, representing about 84 percent of the profit generated by domestically listed companies, according to the statement.
The exchanges will decide which companies join the index based on a formula ranking the top 300 by market capitalization, trading volume and turnover, they said.
The index will be revised every January and July, with no more than 30 companies changed, the statement said.
To be included, members must have been listed for at least three months.
Companies that have breached regulations in the past year or posted a loss in their latest financial statements will be excluded, the statement said.
"The introduction of the unified index doesn't mean we are going to roll out an index futures next week," said Li Mingzhong, a spokesman for the Shenzhen stock exchange.
"What it means is that we now have a basis for the introduction of new products, such as index futures. We are currently studying the possibilities of an index futures contract," Li said.
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