The Shanghai Stock Exchange announced the first overhaul of its benchmark index in three decades. The move aims to better align China's A-share market with its global counterparts and to reflect growing changes in China's economy.

The revision will include the removal of chronically loss-making stocks, a delay in the inclusion of new shares into the index, and the addition of stocks traded on the tech-intensive STAR Market. The overhaul is intended to ensure the benchmark better reflects the overall performance of Shanghai-listed firms.

"In the past, new stocks were included in the index shortly after they had been issued. This means many would see big short-term rises in their prices, which put them far above their real value, and then go through a long period of adjustment. Finally, their valuation would return to a reasonable level, but the whole process had a very negative influence on the index," said Chen Gang, senior strategy analyst at China Merchants Securities.

Another problem was that as of the end of May, the benchmark included 85 so-called special treatment stocks for companies that have been in consistent financial difficulty. The revisions removing those shares and including stocks from the STAR Market are intended to better reflect the growth of China's technology and innovation-oriented firms – an increasingly important segment of the economy.

As of the end of May, more than 100 firms have gone public on the Star Market, with a value of more than 1.5 trillion yuan, representing a significant portion of Shanghai shares. Cai Junyi, chief investment consultant at Shanghai Securities commented that STAR market listed companies represent the new economy, so the new revision will reflect the direction of China's economic transition.

The drag on the Shanghai Composite Index can be clearly shown by the fact that it's still at roughly the same level it was at, a decade ago, while the tech heavy Chinext board in Shenzhen has gained 150 percent since 2010. Experts predict that removing the loss-makers and including STAR Market stocks could see the Shanghai Composite enter a genuine bull run.

"The price-to-book ratio of some traditional businesses, like energy, banking, and the industrial sector, is now relatively low, at around 1. The upside potential for these sectors is very small. But at the same time, the status of emerging industries is rising. With the revisions, we may never see the index below 3,000 points again. There will be very little chance of that. That will have a positive impact on investors' market expectations," Chen added.

Meanwhile, the Exchange announced that it will launch next month a separate index, the Star 50, that will track the 50 biggest-cap shares listed there. The new gauge's first constituent stocks will include China Railway Signal and Communications, the only company so far that has raised more than 10 billion yuan in a Star market IPO.