London Stock Market
Stock markets worldwide are peculiar to their location and other regulatory policies London Stock Market vs Shanghai Stock Market, and the same goes for the London Stock Market and the Shanghai Stock Market. In our video today, we will be looking at both exchanges and analyzing the significant differences between both stock markets. Let’s begin starting at number five.
MARKET CAP.
Market capitalization is the value of a publicly listed company. The London Stock Exchange(LSE) is one of the largest stock exchanges in the world, originating more than 300 years ago with more than 3000 listed companies and a market cap of $3.8 trillion. After merging with the regional exchanges in 1973 and the Italian stock exchange Borsa Italiana S.P.A in 2007, the LSE became one of the leading stock exchanges in the world and the primary stock exchange in the United Kingdom.
Comparatively, the Shanghai Stock market, which started around 1992, is Asia’s biggest stock exchange and the third-largest stock market in the world by market capitalization, standing at $7.62 trillion. In terms of market capitalization, the Chinese stock market is far bigger than the European stock exchange in terms of market capitalization.
OWNERSHIP.
Ownership rights for both markets are peculiar in that the Shanghai Stock Exchange(SSE) is primarily a government agency and is owned and controlled by the government. However, the London Stock exchange is owned by the London Stock Exchange Group plc(LSEG). Chinese investors primarily own Chinese markets, with just a little over 5% of shares owned by international investors.
REGULATORY POLICIES.
Regulatory policies differ in both stock markets. The Shanghai Stock market includes three main stocks, bonds and funds. There are treasury bonds and corporate bonds. Stocks in the Shanghai stock market are issued in two forms; ‘A shares’ and ‘B shares’. ‘A shares’ are priced in the local yuan currency while ‘B shares’ are quoted in U.S dollars. After reforms in December 2002, foreign investors who were not allowed to trade in ‘A shares’ as a result of policies that allowed only domestic investors to trade were allowed with limitations under the Qualified Foreign Institutional Investor (QFII). For the SSE, investors must have a total share capital of more than 50 million RMB.
The company must not have committed any major illegal acts or financial falsehood over the past three years, the company must have gained the approval of the CSRC, the amount of publicly listed stock must be greater than 25% of total issued shares unless a company’s total share capital is more than 400 million RMB in which case the percentage is reduced to only 10%. The Financial Times Stock exchange (FTSE) 100 Share Index is the dominant index containing 100 of the top blue-chip stocks on the London Stock Exchange.
This steadily rivals even the New York Exchange in market capitalization, trade volume, access to capital, and trade liquidity. On October 27, 1986, the government deregulated the London Stock market leading to a modernized trading system that opened the LSE to capital markets worldwide. This move is known as the ‘Big Bang’. The LSE, contrary to the SSE, has a more balanced and regulated environment for trading.
BARRIERS TO ENTRY.
The Shanghai Stock market is not exactly open to foreign investors and often affected by the Central government’s decisions due to capital account controls exercised by the Chinese mainland authorities. However, the primary market of the London Stock exchange is one of the most diverse, with thousands of companies from different sectors in 60 countries. The International Securities Market (ISM) is LSEG’s exchange-regulated market and operates as a Multilateral Trading Family(MTF) under U.K law. ISM operates under its Rulebook, which provides for admission and disclosure requirements.
One way of joining the main market includes the premium-premium segment, which applies only to equity shares issued by commercial trading companies. Premium listing issuers are required to meet the UK’s super equivalent rules, which are higher than the minimum requirements of the E.U. These premium listed companies may have access to lower cost of capital and investors who seek out companies that adhere to the highest standards.
The standard segment is open to issuing equity shares, Global Depository Receipts (GDPs), debt securities, and derivatives that must comply with EU minimum requirements. A standard listing helps companies from emerging markets to attract investments from London’s large pool of available capital. All companies trading on the London Stock Exchange total market value exceeds 3.8 million euros.
TOOL FOR ECONOMIC GROWTH.
Unlike the LSE, Shanghai Stock is not heavily connected to the economy. Chinese markets, in general, are dominated by retail investors, and as a result, the economy remains relatively protected from ups and downs in the stock market. Companies are also restricted in financing opportunities that can prevent economic growth. The Chinese stock market has more limitations, ineffective regulatory policies for enterprise credit ratings, and excessive administrative control. The LSE, however, has become a global hub for sustainable finance with a green economy classification for its equity users.
Interestingly, both the London and Shanghai stock markets seek to bridge the gap between investors in both areas by launching the Shanghai-London Stock connect in 2019. Currently, there are some PRC incorporated companies listed in London. Air China, Datang International Power Generation Company, and Zhejiang Expressway. The Shanghai-London Stock connect allows global investors to benefit from China’s growth through London, while London Stock exchange-listed companies can access Chinese investors directly.
We have introduced you to some of the main differences between the London Stock Exchange(LSE) and the Shanghai Stock exchange, which happen to be two of the world’s biggest stock markets. We hope you enjoyed the video. Remember to subscribe to the channel and check out other videos on the stock market. Till we come your way again, have an eventful time.