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These days, Chinese companies such as Alibaba, Ping An, and PinDuoDuo are starting to become as familiar to many of us investors as US companies like Apple and Amazon. Today, the Shanghai Stock Exchange 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 comparison, the London Stock Exchange (LSE) has a market capitalization of US$3.67 trillion while the Singapore Exchange (SGX) is only around $800 billion. With the rise of China as a global economic power, investing in Chinese companies is becoming hard to ignore for investors who are seeking growth in their investment portfolio.
There are multiple ways we can get investment exposure to Chinese companies. We can 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 buy 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 decide how much allocation you wish to make into each individual company. However, this also means that you will need the experience and understanding of the company to make the right investment decision.
Depending on the company, the stock can be listed on multiple exchanges. For example, Alibaba is listed on the Hong Kong Stock Exchange (SEHK: 9988), as well as on the New York Stock Exchange (NYSE: BABA). So, if you already have access to the US stock markets via 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 listed 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 exchanges.
Screenshot taken from Tiger Brokers App. Alibaba listed on both NYSE and SEHK.
Not all major Chinese companies have a dual listing on the US stock markets. Ping An Insurance, China’s largest insurer with a market capitalisation of CN¥1410 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 one of 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 CN¥15 through Tiger Brokers.
Screenshot taken from Tiger Brokers App. Ping An listed on both SH and SEHK
On the other hand, there are Chinese companies that are listed outside of China and/ or Hong Kong. PinDuoDuo, China’s largest online grocer, is currently only listed on the NASDAQ (NASDAQ: PDD) with a market capitalization of US$172.4 billion. Similarly, you can also use Tiger Brokers to invest in 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 Can Buy A Basket Of Chinese Stocks Through Exchange-Traded Funds (ETFs)
For those who value diversification, exchange-traded funds (ETFs) can be an effective way of investing. You get access to a diversified portfolio of companies with a single purchase of an ETF. However, you cannot choose the specific companies you want to invest in nor the investment allocation for each company within the ETF.
Different ETFs may also offer different allocations to different companies, depending on the index that they are 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 a single ETF share, you can own shares in many different companies. If you wish to invest in ETFs, Tiger Brokers offers one of the most competitive charges for US-listed ETFs at US$0.01 per share and 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. Compared to ETFs, mutual funds offer a more actively managed portfolio of Chinese stocks. This could include stocks that are not included in ETFs or in different allocations from ETFs, depending on the fund manager’s investment strategy. Some mutual funds also offer downside protection through the inclusion of other investment products such as bonds.
Screenshot taken from Tiger Brokers App. List of China-focused mutual funds available on Tiger Brokers Fund Mall
The difference between ETFs and mutual funds is that mutual funds are not listed on the stock exchange. Instead, they are traded over-the-counter (OTC). This makes them harder to access for many 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, which makes it an excellent choice for investing in Chinese stocks through mutual funds.
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