China is rapidly on the road to becoming the world’s largest economy, and represents an interesting and potentially exciting place to invest. Some of the biggest Chinese stocks include online marketplace Alibaba and Bank of China. But buying Chinese stocks often isn’t as straightforward as buying UK ones. We’ve outlined the key things you need to know about investing in Chinese stocks from the UK.
Yes you can. However, you might be hard pressed to find a UK broker that gives direct access to Chinese stock exchanges. such as the Hong Kong stock exchange or Shanghai Stock Exchange. So, if you want to be able to trade in a wide range of Chinese stocks, you’ll need to do a bit of digging into what a provider offers before opening an account.
That said, some of the largest Chinese stocks are “dual listed”. This means they’re also listed on one or more international stock exchanges – such as the London Stock Exchange (LSE) or, potentially more commonly, the New York Stock Exchange (NYSE) or Nasdaq. These stock exchanges are much more widely accessible in the UK, so you may be able to access stocks in some Chinese companies even if your broker doesn’t let you trade directly on a Chinese stock exchange.
As well as buying shares in individual companies, some brokers may offer access to exchange traded funds (ETFs) that give you exposure to a range of Chinese stocks in one hit. Many ETFs track major stock market indices (such as the Hang Seng), for example.
The Chinese government is fairly strict about foreign investment in its companies. Because of this, you’ll encounter different classes of Chinese stock that dictate who can trade in them. There are two main categories that they fall into:
A-shares: these are domestic shares that trade on mainland Chinese stock exchanges – the Shanghai Stock Exchange or the Shenzhen Stock Exchange. A-shares are typically only available to citizens of mainland China. An exception is made for Qualified Foreign Institutional Investors, a scheme that was introduced in 2002. However, the scheme only applies to institutional investors, meaning that private individuals can’t invest directly in A-shares.
B-shares: like A-shares, these are domestic shares trading on the Shanghai Stock Exchange or the Shenzhen Stock Exchange. But unlike A-shares, B-shares can be traded by foreigners by opening an account at the exchange. They’re sold in either US dollars (on the Shanghai stock exchange) or Hong Kong dollars (on the Shenzhen Stock Exchange).
H-shares: these are domestic shares that are listed on the Hong Kong stock exchange or another foreign market. There are no restrictions on who can trade in H-shares. They’re usually listed in Hong Kong dollars.
N-shares: these shares are listed on either the New York Stock Exchange (NYSE), Nasdaq, or NYSE America. Despite not being incorporated in mainland China, they are are still controlled by mainland Chinese companies or individuals. They can be traded in the same way as any other shares on US stock exchanges.
P chips: listed on the Hong Kong stock exchange, these non-Chinese incorporated shares are in companies controlled by mainland Chinese private companies and individuals. They can be traded as with any stock on the Hong Kong stock exchange.
Red chips: these are similar to P chips in how they are listed (on the Hong Kong stock exchange) and traded. The key difference is that they are substantially owned by the mainland Chinese state, rather than only by private companies.
S chips: these operate similarly to P Chips in that they are incorporated outside of mainland China and controlled by mainland Chinese private companies and individuals, but they are are listed on the Singapore Stock Exchange. They can be traded in the same way as any other stock on the Singapore Stock Exchange.
These are a slightly difference type of investment to those listed above. They’re a certificate of purchase from a US bank, representing a specific number of shares in companies.
By purchasing one, you are essentially buying the shares they represent, which can include Chinese shares. They can be traded much like normal shares on the NYSE or Nasdaq, and are purchased and pay out dividends in US dollars.
The charges for buying Chinese shares from the UK varies by broker, and how you are buying the shares. Typically, for private UK investors, you’ll need to buy shares that are listed on a US stock exchange or, less frequently, dual listed on the London Stock Exchange.
If you’re buying Chinese shares listed on a US stock exchange (which many UK investment platforms allow), you’ll need to take into account fees for doing so. You’ll typically pay trading commission (which would apply to UK shares too) and a foreign exchange fee for trading in US dollars.
We’ve given an example below of how fees work in practice, or take a look at our guide to buying US shares from the UK.
If you’re lucky enough to find a broker that lets you trade directly in Chinese stock markets, you should be able to use its tools to research performance. Otherwise, you’ll need to look on the individual exchanges – though bear in mind you may not be able to trade in some shares listed on mainland Chinese exchanges, depending on the share type.
If a Chinese stock is listed on a US stock exchange, you can also check there. Many brokers give access to US exchanges, too, so may well have tools that let you check performance within your chosen platform.
One of the most popular Chinese stock ETFs is the Harvest CSI 300 China A-Shares ETF (ASHR), which tracks the performance of the top 300 stocks on the Shanghai and Shenzhen stock exchanges. There are also a number of other ETFs that track stocks found on the SSE, including:
If you can’t easily, or don’t want to, invest directly in stocks, there are a couple of alternatives: funds, and derivatives. The latter is much riskier.
Investing in funds
A fund is a pooled investment, whereby you invest in lots of different assets in one fell swoop, along with a number of other investors. Funds can include lots of different types of asset, including bonds and property, but you can also get funds that only include stocks and shares. Many track an index. For example, you could buy a fund that tracks the Hang Seng index, which is made up of many of the Hong Kong stock market’s largest companies.
It’s likely to be much easier to invest in funds that include Chinese companies than to buy shares directly, as many such funds will be listed on UK or US stock exchanges. As well as spreading your risk by investing in multiple stocks at once, if a fund is listed on the London Stock Exchange it will almost certainly be in Sterling, thus avoiding currency risk. The downside is that you are likely to need to pay a fee to the fund manager that oversees your fund.
This is effectively where you “bet” on a company’s future performance, through spread betting or CFDs (contracts for difference). We’ve got a full guide on the differences between the two, but in summary:
Both forms of derivative trading are considered pretty risky. Many investors lose money doing so, and they’re better for seasoned investors.
The Shanghai Stock Exchange lists many of the largest Chinese-based companies, including:
As the multiple different share classes for Chinese shares (outlined above) illustrate, the regulatory considerations for investing in Chinese stocks are different from investing in UK stocks. After all, even though it’s adopted free-market principles, it is still a communist country.
You may also need to be aware that insider training may be more common in China, where its prevention may be less stringently enforced than in the UK.
Another consideration is currency risk, which applies when investing in a foreign currency. Essentially, you risk losing money if the pound is weak against the currency you are buying stocks in.
If you’re looking to diversify your portfolio internationally, then China could be an interesting area to investigate. There’s lots to consider though, so make sure you do thorough research, including reading through this guide. It may be easier to start by investing in funds that include Chinese stocks, such as an ETF that tracks an index such as the Hang Seng, than to buy individual shares.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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