Chinas Capital Markets -The changing landscape I5 Equity markets By the end of Q1 2011, the combined market capitalisation of Chinas shanghai and Shenzhen bourses surpassed USD 4.2 trillion, a significant rise compared to USD 400 billion in July 2005. Combined, these bourses have surpassed the Tokyo Stock Exchange, which stood at USD 3.6 trillion at the same quarter end. More than 2, 000 companies are now listed on the Shanghai or Shenzhen stock exchanges. However, the period since 2005 has been far from smooth sailing. If anything China's equity markets have been characterised by far greater volatility in these years, than in the preceding decade and a half Price swings have shown a relatively low correlation to the overall performance of the economy and leading corporations. whose earnings have remained healthy. Having recorded dramatic gains in 2006 and 2007, the markets turned bearish in 2008 and are still to recover to their 2007 peaks While the overall impact on China from the global financial crisis(GFC)was short ved, there was a sustained slide in the market for China equities, which only ended in October 2008. The market continued to fluctuate from then until the first quarter of 2011, with overall performance weak despite far higher levels of turnover Table 1: Number of listed entities at the end of 2010 Securities Type Shanghai Shenzhen Total Shares AShares 895 4731.368 Small and Medium Enterprise board nvestment Funds Red Chips Non-H Share Mainland Pri Source: Stirling Finance Limited. Please refer to the rest of this report for details 0 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG international"), a Swiss entity. All rights reserved.By the end of Q1 2011, the combined market capitalisation of China’s Shanghai and Shenzhen bourses surpassed USD 4.2 trillion1 , a significant rise compared to USD 400 billion in July 2005. Combined, these bourses have surpassed the Tokyo Stock Exchange, which stood at USD 3.6 trillion at the same quarter end. More than 2,000 companies are now listed on the Shanghai or Shenzhen stock exchanges. However, the period since 2005 has been far from smooth sailing. If anything, China’s equity markets have been characterised by far greater volatility in these years, than in the preceding decade and a half. Price swings have shown a relatively low correlation to the overall performance of the economy and leading corporations, whose earnings have remained healthy. Having recorded dramatic gains in 2006 and 2007, the markets turned bearish in 2008 and are still to recover to their 2007 peaks. While the overall impact on China from the global financial crisis (GFC) was short lived, there was a sustained slide in the market for China equities, which only ended in October 2008. The market continued to fluctuate from then until the first quarter of 2011, with overall performance weak despite far higher levels of turnover. Equity markets Table 1: Number of listed entities at the end of 2010 Source: Stirling Finance Limited. * Please refer to the rest of this report for details. Securities Type Shanghai Shenzhen Total Shares A Shares 895 473 1,368 B Shares 54 54 108 Small and Medium Enterprise Board* 0 531 531 ChiNext* 0 153 153 Bonds 505 191 696 Investment Funds 13 93 106 Hong Kong H Shares 163 Red Chips 102 Non-H Share Mainland Private Enterprises 327 1 Source: World Federation of Exchanges. © 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. China’s Capital Markets - The changing landscape | 5