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The Shanghai Composite Index (SHCOMP) is also known as the SSE Composite Index or just simply the SSE Index. It is an index which tracks the performance of all stocks traded on the Shanghai Stock Exchange (SSE). It has been calculated since 1991 and is one of the major indicators of the strength of the Chinese economy.
This page will take you through a brief history of the Shanghai Composite Index, let you know how the stocks it tracks are selected, and tell you how you can invest your money in its performance over time.
The Shanghai Composite Index launched on the 15th July 1991 in order to assess the performance of stocks traded on the Shanghai Stock Exchange – the 4th largest exchange in the world by market capitalisation. The SHCOMP takes the 19th December 1990 as its base date when calculating the stocks that it follows.
The SSE Composite Index’s performance chart over the decades shows steady growth over time, punctuated with large rises and falls in short spaces of time. The most notable of these occurred between 2005 and 2008. In the immediate years before the ‘07-08 financial crash, the Shanghai Composite Index rocketed up from a level of around 1,000 index points in June 2005 to almost 6,000 by October 2007. This then quickly reversed, with the index falling back to just under 2,000 by November 2008.
Similarly, the index saw a spike and fall between 2014 and 2016. It went from a level of around 2,000 in May 2014 to over 5,000 by June 2015, before crashing back down to around 2,700 by February 2016. In both these cases, the index settled above the level it was at prior to the spike, demonstrating its ability to deliver growth even when volatility hits. This effect might currently also be happening as the SSE Composite Index appears to be showing a strong response to the dip induced by the coronavirus pandemic in 2020.
The Shanghai Composite Index includes all the stocks that are traded on the Shanghai Stock Exchange (including both A shares and B shares). Its level is calculated with a base level of 100 on the 19th December 1990.
The easiest way to invest in the SHCOMP index is with either an ETF or a mutual fund. Both of these products will allow you to invest in the performance of all the stocks listed by the index with only one transaction. Mutual funds are a good option if you’re looking to buy and hold for a long time, but incur relatively high fees and can only be bought or sold at the end of each trading day. ETFs (exchange-traded funds) give investors similar diversification, but also come with the flexibility of being able to be traded on an exchange at any time. If you’re planning on trading in the short term, it’s generally advisable to use an ETF.
The other option when it comes to investing in indices is to buy all of the stocks that an index tracks. This can be a good strategy with blue-chip indices such as the Dow Jones Industrial Average, but it is not at all practical with composite indices such as the SSE Composite, as the sheer number of transactions you would have to enact to buy all the stocks on the SSE would be very time consuming and expensive.