Officially, China is a communist state which, in theory, abolishes capitalism, so there should be no stock markets there. However, Chinese are shrewd businessmen and they know that there can be no modern economy without financial institutions. And in a really not-marxist move they opened stock markets in 1990 (closed to foreign investors at first). Economists agree that there is no communism in China, but rather “state capitalism”, where Communist Party members are owners of huge companies, government controls 98% banks, and there are low taxes, especially for exporters who want to sell their products outside China. This strange economic system is vastly effective and allowed China to became second largest economy in the world, after US. There is even saying: “Chinese are like red radish – red on the outside, white on the inside”. It means that they are communist (red) only on the surface, while deep down every Chinese has enterprise spirit (white) which is also a Confucian virtue. That’s quite weird, but then again – for Western people, there are many strange things in China – stock exchange run by communists being one of those things.
Communist Party Congress which took place in 2014. President Xi Jinping is in the middle. Don’t be fooled by hammer and sickle hanging over – these men are in fact powerful businessmen.
In order to further their goals of economic development and to transform country from “world factory” to financial powerhouse, protectionist Chinese decided to slightly open doors to let foreign investors buy some shares and that happen in just last few years. You’ll find here everything you need to know to start investing in Chinese stocks.
How large is Chinese stock exchange?
The largest stock exchange in the world in terms of capitalization is New York Stock Exchange (NYSE), with capitalization of 19.2 billion USD. Among the 10 largest stock exchanges, 3 are located in China. Ranking of the largest exchanges in the world with capitalization is as follows:
||Capital in bln USD||City|
|3||London Stock Exchange||6,1||London|
|4||Tokyo Stock Exchange||4,4||Tokyo|
|5||Shanghai Stock Exchange||3,9||Shanghai|
|6||Hong Kong Stock Exchange||3,23||Hong Kong|
|7||Euronext||3,20||Amsterdam, Paris, Brussel, Lisbon|
|8||Shenzhen Stock Exchange||2,3||Shenzhen|
Note, that if you combine all 3 exchanges, total capitalization will be 9,43 bln USD. This means that after US, Chinese stock market is second largest in the world.
Shanghai Stock Exchange operated in China since 1891 until 8 December 1941, when the city was occupied by Japanese troops during the Second World War. After the war, SSE operated from 1946 until 1949, when it was closed by revolutionary Mao Tse-Tung. Shanghai Stock Exchange in its present form was reopened in 1990. The first session was held on 19 December 1990. At the same time Shenzhen Stock Exchange was founded.
Hours of Operation
Stock exchanges in Shanghai and Shenzhen operate from 09:30 to 15:00, China Standard Time (UTC+08:00). An interesting fact is that among the 20 largest stock exchanges in the world, only 4 exchange which are exchanges in Asia (Shanghai, Shenzhen, Tokyo, Hong Hong) have a break for lunch. In Tokyo lunch break lasts 1 hour in Hong Kong 1 hour and 15 minutes, the Shanghai and Shenzhen it lasts the longest 1 hour and 30 minutes.
They too have their own nice, slightly Asian looking bull
But can foreign investors may acquire Chinese shares?
While the stock exchange in Frankfurt, Tokyo, Hong Kong, New York and London are open to foreign investors, stock exchanges in Shanghai and Shenzhen are only partially open to foreigners. In China, shares are available in 3 different classes: Class A, Class B, Class H. Class A Shares are available only to Chinese citizens.
Class A Shares: are shares of companies on the stock exchanges in Shanghai and Shenzhen, where the price is denominated in Chinese Yuan. This is largest segment of stocks in China. These shares are only available to Chinese investor and a foreign investor is not allowed to purchase Class A shares.
Class B shares: are shares of companies on the stock exchanges in Shanghai and Shenzhen, the price is denominated in USD and are available to foreign investors. But there are also strict limits on how many shares can be bought by foreign investors, even in “Class B”.
Class H shares: are shares of Chinese companies listed in Hong Kong. The share price is expressed in Hong Kong dollars. Shares Class H shares are usually bought by foreign investors, who want to have a portfolio of Chinese assets. Some Chinese companies registered in Hong Kong are also listed on NYSE, NASDAQ, London Stock Exchange and Singapore. There are no barriers for purchase of Hongkong stocks by foreigners.
So can you actually invest in Chinese companies or not?
Let’s summarize it in a few points to make it more clear. :
- You can’t buy a Class A shares from Shenzen and Shanghai at all,
- You can buy a Class B shares from Shenzen and Shanghai, however there are many requirements needed to do this and not many brokers have those stocks in their offers. There is a way to do this though: there are index funds containing those “Class B shares”. These funds are available from few largest investment banks trading there and I bought mine from Deutsche Bank in 2010. It gave me great results of 10% yearly (i sold it after 2 years) and if you trade with large, international broker, there should be some available for you.
- You can buy all Class H shares from Hong Kong stock exchange. Hong Kong is one the financial Chinese centers and it has special status of Special Administrative Region, along with semi-autonomous law, government and it’s own currency – Hongkong Dollars. Chinese gave it special rights to conduct international business there and this very rich region has also largest concentration of international companies. “Class H” shares are most easy to purchase and there are many brokers offering it. It can be quite hard though to trace news from Hong Kong market, with many information available only in Chinese language. So the solution would be to buy Hang Seng Index, containing 50 largest HK companies.
- Hang Seng Index contain 50 largest companies listed in Hong Kong, representing about 58% capitalization of this stock exchange. It’s ticker symbol is HSI or HSI 50. This means that investing in Hang Seng enables you to buy average performance of this market. Because those 50 companies are largest and mature, it means that they are also stable and should yield safe results. Investing in Hang Seng will give you access to median of powerful Chinese market without need to check individual stocks.
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