How to buy Chinese shares?
Investing in China is very attractive nowadays. The country has a booming middle class and that middle class is buying more and more. This allows Chinese companies to deliver their products and services to this new group, which of course is good for profitability. But how can you invest in China yourself?
How to invest in Chinese shares?
It is understandable that you want to take advantage of this emerging market. But where can you actually invest in China? And where is this the cheapest?
If you want to actively invest in China by using CFDs, Plus500 is a good party. With this broker, you can use various orders that make trading in the short-term possible. You also benefit from 0% commission on all trading positions. Use the button below to create a free demo account:
Where can you buy Chinese stocks?
Would you rather invest in China long term? You can do so by buying Chinese shares. To make these investments you need an account with a broker. A good broker with whom you can invest in Chinese companies is eToro. At eToro you do not pay commissions. Use the button below to open an account directly with eToro:
Everything about investing in China
- What makes investing in China interesting?
- What should you be careful of when investing in China?
- Which indexes can you invest in?
- What are well-known Chinese shares?
- What types of Chinese stocks are there?
- How to invest wisely in China?
Investing in China can be fascinating because of the enormous growth. In the Western world, the biggest growth spurt has already occurred, and annual growth is slowing down. In an emerging country like China, you will see that there is still a lot of room for growth. This is because the country experienced a very rapid development. The formerly mainly poor population has more and more to spend.
With a total population of over a billion, China is an exceptionally large market. The country's middle class is growing, allowing companies to provide products and services to more and more people. As a result, there is still a lot of room for (new) companies, which allows the profit margins to continue to grow considerably. Still, it is not all positive: investing in China also brings quite a few risks.
The big growth rate is also a risk. The capabilities of many companies are elevated greatly. This is all in line with the expected growth. At some point, however, a risk of overcapacity exists. This can happen when the final growth disappoints. Suddenly, too many cars and steel are produced. Many of these products are cyclical, which means that demand is only high in times of economic prosperity.
Because the Chinese market is still a relatively new one, it is also riskier to invest in the market. Competition is fierce and it is not always clear who will become established parties. Successful companies today could topple in the future.
Are you looking for a relatively safe investment in China? Then technology companies like Alibaba and Tencent are interesting. These companies have few assets and are somewhat shielded from competition. Moreover, more and more people have access to the Internet, which can make an investment in a Chinese internet company attractive.
Beware of debt
Debt is always a risk when you start investing in a region. In China, you will see that both government debt and corporate debt have increased. As a percentage of the GDP, the figures are not alarming. However, it is important to remember that the country's total income has increased.
We already learned in 2008 how a huge mountain of debt can disrupt an economy. When buying Chinese shares, it is therefore important to keep a close eye on debt developments in the country.
What is the effect of the trade war?
The trade war between America and China has garnered a lot of media interest. But what is the effect of the trade war on Chinese companies? This effect may remain quite limited.
After all, the trade war and the increased tariffs are only relevant for companies that are highly dependent on imports and exports. Many Chinese companies are now focusing on the internal market. Nevertheless, you will notice that the tensions have had a negative effect on share prices. You can use times like these to look for bargains on the stock market.
More and more Chinese companies are being blacklisted by America. For example, Huawei can no longer sell most of its products in America and the popular application TikTok has also been banned. These tensions may put pressure on the future growth rates of Chinese companies harbouring international ambitions.
Beware of fraud
In emerging economies, you often see more fraud. Management boards cook the books or funnel money away. These kinds of events can be bad for both the stock price and for the company. It is therefore important to check whether the company in which you want to invest operates ethically.
Do you have any concern about the vulnerability to fraud of investments in China? Then it is smart to invest diversified as much as possible. Problems at one company can then be offset by successes at another company. You can apply diversification by buying multiple shares in different companies or by using an index fund.
A recent example of fraud exists in the company Luckin Coffee. For years, the company inflated its profit figures, making it seem much more successful than it was. This was possible because China imposes much lower requirements on audits carried out by auditors. In addition, many Western investors have lost a lot of money in investing in this Chinese stock.
Another risk of investing in China is the large government influence on many companies. In secret, the Chinese government could be a company’s largest shareholder. At the same time, some companies mainly sell products to the Chinese government. A good example of this is the company Hikvision, which can quickly identify people using artificial intelligence. The supervisory quality within some of these companies is therefore questionable.
Beware of the exchange rate
Chinese shares are listed on several exchanges. For example, you can buy Chinese shares in the United States by paying with dollars or in Hong Kong by paying with the Hong Kong dollar. If you use a currency different from your own, there is a risk that your investment will devalue in your own currency. At such a time, it is important to keep a close eye on the exchange rate.
At the same time, the exchange rate of the Chinese Yuan also affects the results of Chinese companies. When a company markets numerous products abroad, then a cheap Yuan can help. In that case, it is cheaper for foreigners to buy Chinese products.
What are the best known stock indexes in China?
There are two well-known indexes that track companies in China. Below we discuss the well-known indexes in which you can invest.
Hang Seng index
The Hang Seng index is Hong Kong’s index. Companies listed on this index often focus more on foreign countries. One advantage of the Hong Kong index is that the companies listed on this index often have less corruption. At the same time, it is easier for foreign companies to do business there.
However, if you want to invest in the Chinese market directly, the Hang Seng index may not be the best choice given its international orientation.
Tip: check the opening hours of the Hong Kong stock exchange here.
China's largest and best-known index is the Shanghai-Composite. In addition to the Shanghai-Composite, there is the Shenzen-Composite. On the Shenzen-Composite you will find countless technology companies that are not very well known in the west.
Tip: check the opening hours of the China stock exchange here.
Below we will discuss well-known indexes that track the Chinese stock market:
FTSE China 50
The FTSE China 50 index tracks the 40 largest and most liquid Chinese stocks listed on the Hong Kong stock exchange. This includes the so-called H-Shares, Red Chip shares, and P Chips.
Hang Seng China Enterprises (HSCEI)
This index tracks the 50 most important Chinese H-shares listed on the Hong Kong Stock Exchange.
This index tracks the largest and most liquid stocks listed on the Hong Kong stock exchange. This includes H-shares, B-shares, Red Chips, and P Chips.
MSCI China A
This index tracks the largest and most liquid Chinese A-companies listed in Renminbi. These shares are listed on the Shenzen or Shanghai stock exchange.
MSCI Schina H
This index follows the largest and most liquid stocks listed on the Hong Kong Stock Exchange.
Well-known Chinese trackers to follow
Below are some well-known EFTs you can buy when you want to invest in China:
- MSCI China through the Xtrackers MSCI China Index
- CSI China with Xtrackers CSI 300 Swap: an EFT with a strong risk diversification
- Ishares China EFT: unfortunately has a slightly higher cost and is therefore less interesting
Where to buy cheap Chinese trackers?
A cheap and reliable broker for buying and selling Chinese stock trackers is DEGIRO. At DEGIRO you also trade for free in the index funds mentioned within the core selection. Use the button below to open an account with DEGIRO:
What are well-known Chinese stocks to invest in?
In this part of this article we look at some well-known Chinese stocks that you can consider buying.
Think of Tencent as the Facebook of China. The company is vying for dominance in the Chinese IT world alongside Alibaba (and to a lesser extent Baidu). A well-known Tencent platform is, of course, WeChat. However, they make more money through online gaming. Games like League of Legends and Supercell attract many players and the company makes a lot of money this way. There is still room for developments in this market. Investing in the Chinese share Tencent can therefore be interesting.
Beijing Capital International Airport
With this share, you can invest in the largest airport in Beijing. The number of flights to China will increase further in the future. Investing in the international airport can therefore be profitable. However, the new airport is a formidable competitor that one should monitor.
Another interesting share to invest in Kweichow Moutai. This Chinese company is engaged in the production of liquor. Chinese people like booze and the company's sales and profits have grown considerably. An investment in this Chinese company could therefore turn out well.
These are Chinese companies whose headquarters are located on mainland China. They are traded on the Shanghai or Shenzen stock exchange and are listed in the Chinese Yuan currency. As a foreign investor, you cannot simply purchase A-shares. You will have to invest indirectly in A-shares through, for example, an ETF.
These are Chinese companies that are also based on mainland China. They are listed in U.S. dollars on the Shanghai Stock Exchange and in Hong Kong dollars on the Shenzen Stock Exchange.
These are companies that are based on mainland China, but are listed on the Hong Kong stock exchange. The companies are listed in Hong Kong dollars.
Red chips are Chinese state-owned enterprises. These companies can be found outside the mainland (usually in Hong Kong) and are also traded in Hong Kong dollars.
These companies are not state-owned but are located outside mainland China. The shares are traded in Hong Kong dollars in Hong Kong and are often located in tax havens (like, for example, the Cayman Islands).
N-shares are Chinese companies located outside the mainland. These shares are listed on, for example, the NYSE or Nasdaq and are therefore very internationally oriented. These shares can be traded in dollars.
When you are going to invest in Chinese stocks, it is important to do this wisely. Do not simply buy up random companies because you like the names. Plan and think about when and why it is interesting to get in. Write down your plan so you really stick to your strategy!
When you start trading actively, it is even more important to have a good plan in place. In this case, always think of an exit strategy. By using a stop loss, you can avoid losing a large part of your investment in Chinese shares due to a mistake.
Finally, it is of course essential to remember that when investing in Chinese equities you always have the risk of losing your entire initial investment. Therefore, invest wisely!
Trends in China
The rate at which China's economy is growing is slowing down. This is not surprising when you consider that the Chinese economy is much bigger now than it was decades ago. Exports are becoming less and less important to China, while their market is becoming increasingly interesting. The demand for luxury products is growing and as people are getting older you can see that the insurance and health sectors also have a lot of growth potential.
Volatility in Chinese shares is above average. This is partly because mainly private individuals are active on the Chinese stock exchange. These individuals react quickly and unpredictably to changes in sentiment: Chinese investors often expect a fast and high return. As a result, it is often smarter to invest actively in Chinese equities. After all, when you invest passively, you will not be compensated for the strong price fluctuations.