Starting from July 29th, a special stock market index will be reported in a new way, called the "Shanghai Composite Total Return Index." However, many people have misunderstood its meaning after hearing about it, so let me explain it one by one.

Firstly, this total return index is not a new thing. Some people think that a brand-new index will be released on July 29th, but in fact, this index has been in existence since October 2020. It's just that from July 29th, the index's scores will be updated in real-time, instead of only being announced after the market closes every day.

Secondly, this index will not replace other indices. Some people worry that this new real-time update will make other old indices useless, especially the familiar 3000-point threshold. This is also not true. There will still be many other indices in the market, each with its purpose.

Thirdly, this index did not deliberately avoid 3000 points. Some comments say that this index seems to have deliberately skipped 3000 points, but this is not true. The starting point of this index is 3320.89 points, which is determined according to the market situation on the day it started, without deliberately skipping any numbers.

Advertisement

Lastly, this new release method is not to abandon other indices. Some people have also misunderstood, thinking that because this index needs to be updated in real-time, other indices will be eliminated. In fact, this is not the case, each index has its value.

This "Shanghai Composite Total Return Index" is actually an index that includes dividends issued by companies (that is, the part of the money that companies make and distribute to shareholders), which can help investors see how much their investments have earned in total. From July 29th, the numbers of this index will change in real-time, which is to better reflect the overall profitability of the Shanghai stock market, allowing investors to see the true face of the market more clearly. The method of making this index is the same as the Shanghai Composite Index.

When talking about stock market indices, people usually hear the terms "price index" and "total return index." But what is the difference between the two? Let me explain it simply:

The basic difference between price index and total return index:

Price Index: This type of index only focuses on the changes in the price of stocks, without considering the cash dividends distributed by companies to shareholders. That is to say, it only shows the rise and fall of stock prices, without including the income you get through dividends.Total Return Index: This type of index differs in that it takes into account both the price performance of stocks and the cash dividends distributed by companies to shareholders during its calculation. This means that the total return index reflects the total return of holding shares—namely, the profit from price increases and dividend income.

Index Adjustment Reflection:

When a company pays dividends, the price index naturally falls due to ex-rights and ex-dividend adjustments, as the market price is adjusted accordingly.

The total return index takes into account the reinvestment of these dividends, so its index value does not naturally fall due to ex-rights and ex-dividend adjustments.

Now, some misunderstandings about the Shanghai Composite Total Return Index need to be clarified:

Misunderstanding One: The belief that it is a new index. In fact, the Shanghai Composite Total Return Index is not newly launched. It was first released on September 18, 2020, and has been around for four years. This index is a derivative version of the Shanghai Composite Index, which includes eligible stocks and depositary receipts listed on the Shanghai Stock Exchange. Importantly, this index takes into account the company's dividends during its calculation, thus more comprehensively reflecting the actual returns of investors.

Misunderstanding about the new policy: Some people believe that this index was introduced to coordinate with the newly released "Nine National Policies." In reality, the design and release of this index are entirely based on the need for multidimensional market observation, and it has existed long before the "Nine National Policies."

Misunderstanding Two: The index is for "never seeing 3000 points again."

Some people believe that setting 3320.89 points as the base point is an intentional avoidance of 3000 points. Even some people interpret the index code 000888, which sounds like "fa fa fa" in Chinese, as a kind of metaphysical operation. These seemingly interesting explanations may attract attention in the market, but they are not the facts.The truth is, the Shanghai Composite Total Return Index chose the 3320.89 points on July 21, 2020, as the base point. This was entirely based on the actual market conditions at the time and did not attempt to avoid or point to any specific number. The choice of this date and point is unrelated to the "defending 3000 points" statement, but a standard statistical method.

Globally, large indices such as the S&P 500 usually release the corresponding total return index when publishing the price index. The purpose of this is to provide investors with a more comprehensive market observation tool.

Starting from July 29, the Shanghai Stock Exchange has been updating the Shanghai Composite Total Return Index in real time. This is to help investors understand the overall performance of the Shanghai market more timely, conveniently, and comprehensively, including stock price changes and dividends.

Misunderstanding three: 3320.89 points as the base point, automatically skipping many points starting from 3000 points.

There is also a misunderstanding that choosing 3320.89 points as the base point seems to deliberately avoid values below 3000 points. In fact, the base day of the Shanghai Composite Total Return Index is the market closing point on that day, and this index has always been there, but there was no real-time market update before.

In fact, the performance of this index at different points in time also proves that it has not avoided any specific points. For example, on February 2, it once dropped to 2931.23 points, which was the lowest point of the year; and on May 20, it rose to 3430.75 points, which was the highest point of the year. This shows that the index fluctuates above and below 3000 points, and there is no "automatically skipping" some points.

The relationship between the Shanghai Composite Index and the Shanghai Composite Total Return Index:

The Shanghai Composite Index is one of the oldest indices in China's A-share market and is also one of the most commonly used reference indicators. It is mainly used to reflect the overall stock price performance of the companies listed on the Shanghai Stock Exchange.

The Shanghai Composite Total Return Index, on the other hand, has been further developed based on the Shanghai Composite Index. It not only includes changes in stock prices but also considers the cash dividends issued by companies to shareholders. This means that the Shanghai Composite Total Return Index provides a more comprehensive perspective, which can show the overall performance of the stock market, including stock price appreciation and dividend income.Market Application:

The SSE Comprehensive Total Return Index is not intended to replace the SSE Composite Index, but rather serves as a supplementary tool to help investors observe the market from more perspectives. The SSE Composite Index will continue to be widely used because it reflects the changes in stock prices without dividends, which is still very important for different investment analyses and strategies.

Data Comparison:

For example, from July 21, 2020, to May 21, 2024, the SSE Comprehensive Total Return Index was at 3,271.5 points, while the SSE Composite Index was at 2,974.01 points. This indicates that the Total Return Index is 297.49 points higher than the ordinary composite index, and this difference is due to the inclusion of dividends.

During the same period, the decline of the SSE Comprehensive Total Return Index was 1.49%, while the decline of the SSE Composite Index was 10.45%. This difference shows the actual impact of dividends on investment returns, and the Total Return Index can more accurately reflect the actual returns of investors.

In summary, the SSE Comprehensive Total Return Index is a beneficial supplement to the SSE Composite Index. The coexistence of the two provides investors with more comprehensive and detailed market data and analysis tools. This multi-dimensional market observation method can help investors better understand and evaluate their investment choices.