These days, Chinese companies for example Alibaba, Ping An, and PinDuoDuo are beginning to become as familiar to many of us investors as US companies like Apple and Amazon. Today, the Shanghai Stock market is the third largest stock exchange by market capitalization (at US$6.5 trillion), only behind the NYSE (US$24.49 trillion) and NASDAQ (US$19.34 trillion). In contrast, the London Stock Exchange (LSE) includes a market capitalization of US$3.67 trillion as the Singapore Exchange (SGX) is only around $800 billion. With the rise of China as a global economic power, purchasing Chinese companies is becoming hard to ignore for investors that need growth in their investment portfolio.
There are multiple ways we are able to get investment exposure to Chinese companies. We are able to invest directly in the stocks of some of these Chinese companies, invest in Chinese-based ETFs or mutual funds if we want diversification.
#1 We Can Buy Individual Stocks Of Chinese Companies
The first and most straightforward way is to directly purchase the individual stocks of the various Chinese companies we are interested in. The advantage of buying individual company stocks is that you, as the investor, are in full control of your investment decisions and can choose how much allocation you wish to make into every individual company. However, this also implies that you will need the experience and knowledge of the company to make the right financial commitment.
Depending on the company, the stock could be listed on multiple exchanges. For example, Alibaba is listed on the Hong Kong Stock Exchange (SEHK: 9988), and also on the New York Stock Exchange (NYSE: BABA). So, if you already have access to the US stock markets with an existing broker that you trade through, buying Alibaba stock under BABA is one way to invest in Alibaba.
For example, through Tiger Brokers, itself also on the NASDAQ (NASDAQ: TIGR), we can gain access to both the New York Stock Exchange and the Hong Kong Stock Exchange, and thus, can choose to invest in Alibaba stocks on either stock markets.
Screenshot taken from Tiger Brokers App. Alibaba for auction on both NYSE and SEHK.
Not all major Chinese companies possess a dual listing on the US stock markets. Ping An Insurance, China's largest insurer with a market capitalisation of CNyen1410 billion or about US$215 billion, is listed on the Hong Kong Stock Exchange (SEHK:2318) and Shanghai Stock Exchange (SH:601318).
However, most brokers do not offer direct access to Chinese stocks, instead access is through the Shanghai-Hong Kong or Shenzhen-Hong Kong Stock Connect. Tiger Brokers is among the brokerages with this access. You can purchase Chinese A-shares with charges as low as 0.06% of trade value and a minimum commission of CNyen15 through Tiger Brokers.
Screenshot obtained from Tiger Brokers App. Ping An listed on both SH and SEHK
On the other hand, you will find Chinese companies that are listed beyond China and/ or Hong Kong. PinDuoDuo, China's largest online grocer, is currently only listed on the NASDAQ (NASDAQ: PDD) having a market capitalization of US$172.4 billion. Similarly, you can also use Tiger Brokers to purchase the U.S. market with commission fees for the US market at a very affordable US$0.01 per share with a minimum of US$1.99 per trade.
#2 We are able to Buy A Basket Of Chinese Stocks Through Exchange-Traded Funds (ETFs)
For people who value diversification, exchange-traded funds (ETFs) is definitely an effective way of investing. You get access to a diversified portfolio of companies having a single purchase of an ETF. However, you can't choose the specific companies you need to invest in nor the investment allocation for each company within the ETF.
Different ETFs could also offer different allocations to different companies, depending on the index that they're tracking. For example, Alibaba being one of the largest Chinese companies by market capitalization is included in many China-focused ETFs but its allocation differs for each ETF.
Screenshot taken from Tiger Brokers App. Constituent stocks of 3 China-focused ETFs: iShares MSCI China ETF (MCHI), iShares China Large-Cap ETF (FXI), Invesco China Technology ETF (CQQQ)
With just one ETF share, you can own shares in many different companies. If you wish to invest in ETFs, Tiger Brokers offers probably the most competitive charges for US-listed ETFs at US$0.01 per share along with a minimum of US$1.99 per order.
#3 We Can Buy A Basket Of Chinese Stocks Through Mutual Funds
Similarly, we can also gain access to a portfolio of Chinese stocks through mutual funds. When compared with ETFs, mutual funds provide a more actively managed portfolio of Chinese stocks. This could include stocks that are not included in ETFs or in different allocations from ETFs, with respect to the fund manager's investment strategy. Some mutual funds offer downside protection through the inclusion of other investment products for example bonds.
Screenshot taken from Tiger Brokers App. Listing of China-focused mutual funds available on Tiger Brokers Fund Mall
The difference between ETFs and mutual funds is the fact that mutual funds are not listed around the stock exchange. Instead, they are traded over-the-counter (OTC). This will make them harder to access for a lot of retail investors.
However, this is where Tiger Brokers stands out by offering single account access to mutual funds, ETFs and individual stocks. Additionally, Tiger Brokers Fund Mall currently offers 0% sales charges on all funds, that makes it an excellent choice for investing in Chinese stocks through mutual funds.
For a restricted time only, Tiger Brokers is providing welcome gifts of a free share of StarBucks, 60 commission-free trades plus 500 Tiger Coins for new clients who register (500 Tiger Coins), open a merchant account (60 commission-free trades within 180 days) and fund their account (free share of Starbucks with an initial deposit of SGD2,000). You can find out more about this limited time promotion here.
Terms and types of conditions apply.