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Why Every Singapore Investor Should Consider Investing In The China/ Hong Kong Market

Not investing the time and effort to understand the China/ Hong Kong market maybe riskier


When we talk about investing in Singapore, most of us think about investing in the local stock market or the US stock markets. We may be invested into the STI or the S&P 500 or individual stocks like local blue-chip stocks or REITs, i.e. DBS, UOB, OCBC or Ascendas REIT, or global tech stocks like Apple, Microsoft, Google/ Alphabet or Facebook/ Meta. However, there are also plenty of investment opportunities outside of the Singapore or US markets.

Whether we invest locally or globally, there is one market that every Singapore investor should consider adding to their investment portfolio: China, and Hong Kong by extension. While some investors may be reluctant to consider investing in the China/ Hong Kong market due to the recent decline in stock prices and market underperformance, dismissing the entire China/ Hong Kong market may be unwise for Singapore investors.

Here’s why Singapore investors should consider investing in the China/ Hong Kong market.

Read Also: 10 Largest China Companies That We Can Invest In Today

#1 China Is A Global Superpower And Singapore’s Largest Trading Partner

With a population of 1.4 billion and a GDP of RMB 95.1 trillion in 2020, China is a global superpower that we cannot afford to ignore. China’s economy has been on a nearly 40-year growth trajectory. According to Forbes, within a single generation, China has grown its GDP per capita, by 17 times (after adjusting for inflation) compared to 1980. Currently the world’s second-largest economy, China is predicted to take the top spot from the U.S. by 2028.

According to the World Bank, the world’s Gross Domestic Product (GDP) growth rate was -3.363%, while China’s GDP remained positive at 2.3% in 2020. Other developed economies also faced less than positive growth rates. The United States (U.S.)’s GDP growth rate was -3.6% in 2020 while the United Kingdom (U.K.)’s GDP growth rate was -9.7% and Singapore’s GDP growth rate was -5.4%. In light of global contractions, China’s growth rate stands out as a bright spark even amidst global downturn brought by the pandemic.

In particular, China is Singapore’s largest trading partner with $164.3 billion merchandise traded in 2021. Exports to China ($89 billion) exceeded imports from China ($75 billion). This makes China an important market for Singapore investors due to its significant impact on our economy.

#2 China Has The Third Largest Stock Market

China has two main stock exchanges: the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Together, they form about $14.37 trillion in market capitalization.

The Shanghai Stock Exchange is the third largest stock exchange by market capitalization (at US$8.15 trillion), only behind the NYSE (US$27.69 trillion) and NASDAQ (US$24.56 trillion). The Shenzhen stock exchange is the sixth largest at US$6.22 trillion in market capitalization. As a reference, the London Stock Exchange (LSE) has a market capitalization of US$3.8 trillion in 2020 while the Singapore Exchange (SGX) is only around $896 billion as of December 2021.

In 2020, China is the second largest economy with a GDP of US$14.72 trillion, just behind the US with a GDP of US$20.94 trillion. While the GDP of the U.S. is 1.4 times that of the GDP of China in 2020, the total market capitalisation (US$27.69 trillion) of the largest stock market in the US, the New York Stock Exchange (NYSE), is about 3.4 times the total market capitalization (US$8.15 trillion) of the largest stock market in China, the Shanghai Stock Exchange.

For Singapore investors, this could be an attractive investment opportunity to ride on growth if they believe that the Chinese stock markets are undervalued or believe that the market capitalization of the Chinese stock markets would eventually catch up to its GDP impact on the global economy.

#3 China Is A Hotbed For Growth (And Unicorns)

The underlying narrative behind investing in the China has been growth and China has not disappointed in this regard. According to Tracxn, China is home to 231 unicorns (start-ups valued at over $1 billion), including familiar names like Lalamove (founded in Hong Kong) and FWD (founded in Hong Kong).

Today, Chinese brand names do not look out of place beside their global peers. Chinese companies, such as Alibaba, Tencent and Xiaomi, have gained global recognition to be as familiar as Apple and Amazon.

For example, In June 2021, Xiaomi surpassed Apple to be the second largest mobile phone supplier in the world, just behind Samsung. However, this lead was only temporary as Apple regained the top spot with Samsung in second place in 4Q2021. Still, this is impressive when you consider that Xiaomi only expanded out of China in 2014.

One area of technology innovation that China has an undisputed lead is in the field of Electric Vehicles and Future Mobility (EVFM). China dominates the world’s production of lithium-ion battery which is a key component of EV manufacturing. According to BloombergNEF, China controls 80% of the global raw material refining, 77% of the global cell capacity and 60% of global component manufacturing.

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#4 Accessing The China Market Through Hong Kong

Due to the closed capital nature of the China market, early investors may have been put off by the difficulty in investing directly in Chinese companies.

For investors who are wary of investing directly in China, Hong Kong-listed companies may be an easier option. Hong Kong-listed shares (or H-shares) have been available to Singapore investors for a long time. Many Chinese companies have dual listings on both the Shanghai or Shenzhen stock exchange and the Hong Kong Stock Exchange. For example, Ping An is listed on both Shanghai and Hong Kong stock exchanges. Some companies are also listed on US stock exchanges. For example, Alibaba is listed on both the New York Stock Exchange and Hong Kong Stock Exchange.

Regardless, investing in China changed in recent years with improved access for Singapore investors who now have a wide variety of options to invest via ETFs, robo-advisors or even direct brokerage access.

Investing In China Has Its Risk And Reward

Investing in China is not without its challenges, especially given the closed nature of its capital markets and the risk of regulatory and government intervention. Naysayers may point to the recent Chinese government crackdowns and conclude that investing in China is too risky.

However, given the growth trajectory of China and its proximity to Singapore, neglecting China in our investment portfolios could be detrimental to our long-term investing goals. Over the long run, it may be well worth the risks and effort for Singapore investors to understand and invest in the China/ Hong Kong market

Read Also: China’s Regulatory Clampdown – What Is Next For Investors To Look Out For?

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