The long-awaited unified stock index will be launched on Friday, grouping shares from the Shanghai and Shenzhen stock exchanges.

The two exchanges announced late on Monday that the new index would comprise of 300 sample stocks, including 121 Shenzhen-listed shares and 179 listed in Shanghai.

They are believed to be mainly large-caps with good liquidity, as they account for about two thirds of the total market capitalization in China.

It is the first time the two exchanges have joined hands to promote this sort of unified index, one that is regarded as a precursor to derivatives that would offer investors new risk-hedging tools.

The index will be first calculated on Friday, taking December 31, 2004 as the base day for a 1,000-point-level.

"It will take time for investors to adopt the new unified index as a barometer because most of them are accustomed to the Shanghai composite index," said Dong Chen, an analyst at China Securities.

But gradually the unified index should be more widely accepted and more fund products tracking the index will come out, he said yesterday.

Compared to the existing indices, the new index should present investors with a more authoritative, comprehensive and accurate source of information about overall market movements, he said.

Presently, only a few securities institutions have promoted their own common indices that track shares listed in Shanghai and Shenzhen, like the S&P/CITIC 300 index, which was jointly developed by Standard & Poor's and CITIC Securities, while the indices used by the two exchanges are operated separately.

The 300 constituents of the expected unified index recorded averaged daily transactions of 6.3 billion yuan (US$760.8 million) in the first quarter of this year, which accounted for about 54 percent of all market transactions at the time.

They also contributed 84 percent of the net profits realized by all domestic listed companies in the first three quarters of last year and paid more than 80 percent of the dividends in 2004.

Included in the samples are China's leading oil company Sinopec and top steel maker Baosteel. The index also comprises China Merchants Bank and Yangtze Electric Power.

A spokesman for the unified index work committee of the Shanghai and Shenzhen stock exchanges said the index would enrich the present index family and lay the basis for more index-related investment products.

However, the promotion of the unified index does not mean an imminent launch of index futures, the spokesman said.

Normally the launch of index futures needs a benchmark index that has a certain record of performance.

(China Daily April 6, 2005)