Chinese stock market guides

Chinese Stock Market Guides

An investor’s investment portfolio is not global today without China. In the 21st century, China plays a vital role in the global financial market. Due to the one-child policy in China, gender-based roles are kept fading away with time, resulting in more women in the labour force. While this is good for the active participation of women in the labour force, but unfortunately, the only child has to provide for his/her family no matter what. That’s why China is thriving at entrepreneurial activities. And this is one of the major reasons, why foreign traders should start to look at the Chinese market.  

As global stocks and bonds already contain Chinese securities, many investors who have diversified portfolio do not even realise that they already hold Chinese securities. That means the trader with a global portfolio will get exposure to China in any way through some tech giants and companies like Nike. China is one of the largest economies in the world, so some of the biggest companies in the world are headquartered in China.  

Be it investing in individual stocks or contributing to China’s consumer market growth through index funds, business connection with China seems to be potentially lucrative. What if you want to invest in Chinese stocks? And how can you pick non-controversial stocks in the Chinese market?

So let’s talk first about the significant Chinese stock exchange-the Shanghai Stock Exchange (SSE). 

Shanghai Stock Exchange

Shanghai stock exchange is the stock exchange based in the city of shanghai. It is one of the three major stock exchanges practising independently in the people’s republic of China. The primary criteria for the inclusion of stock in the shanghai exchange is that company’s total share capital must not be less than Renminbi (RNB) 50 million. In addition, the company should have made profit over the last three consecutive years and have been operating for more than three years. 

The securities listed on Shanghai Stock Exchange include major categories such as stocks, funds, and bonds. There are two types of shares listed in SSE, A shares and B shares. Only B share is open to trade for foreign investors and is quoted in USD. A share is restricted to only local investors but still, foreign investors can trade in A shares with certain limitations under the Qualified Foreign Institutional Investor (QFII) program. But the good sign is that stock exchange regulators putting efforts for the recognition of A shares to the global investing community. 

Now the other two Stock exchanges are Shenzhen Stock Exchange with over 2200 listings and the Hong Kong Stock Exchange with over 2400 listings. Companies based in mainland china also trade in the Shenzhen stock exchange. 

Investing through ETFs

Investors feared from high risks associated with Chinese stocks can minimise their risk through trading Exchange-Traded Funds (ETFs) or mutual funds by not looking directly at individual Chinese stocks. So that the risk-reward ratio does not bother you. The benefit of buying ETFs is that many Chinese companies are listing in SSE or Hong Kong stock exchange instead in the US. This results in a much lower probability of risks. 

Traders can tap into the three times levered ETF Direxion Daily FTSE China Bull (YINN), including the 50 largest companies like Alibaba, JD.com, and Tencent stock listed in Hong Kong. Another ETF KraneShares CSI China Internet (KWEB) including major Chinese tech giants like Tencent and Bilibili. 

Apart from these, traders should follow the stock market trends, whether it is uptrend or downtrend so that they already have knowledge before investing and trade accordingly. 

Beijing crackdown 

Let’s talk about the significant risks while investing in Chinese stocks. Authorities and regulators often fine, ban or imposing restrictions with advanced notice. Traders should aware of such news before investing in any stock. China’s cybersecurity regulator said to remove Didi Chuxing from the app stores. The cybersecurity regulator suspended new user sign-ups of Didi. The regulator claimed that Didi has been flawed at the usage of personal information of its users and violated the restriction on the collection of data. 

Zooming out, China can impose cybersecurity reviews on companies specifically data-centric and technology-oriented listing overseas.  Companies listed in Hong Kong appear to be from any impositions, which means there are only few companies listing in the U.S. that move forward. 

Beijing is considered to convert profit school operators like TAL Education (TAL), New Oriental Education (EDU) and Gaotu Education (GOTU) into non-profit after-schooling tutoring firms. and as regulators signalled new restrictions, these stocks have seen a steep fall in 2021. 

Alibaba also had a conflict with regulators in 2020 while the regulators banned the IPO of Ant group and considering probing internet platforms. Authorities fined Alibaba with $2.8 billion for anti-competitive actions and sent the notice to change certain practices. Ant Group, the affiliate of Alibaba is complying with regulators’ demand by limiting the scope of some of its businesses.

Varying currency exchange rates

When there is a movement in exchange rates, returns on your investment might be impacted.  Sometimes you can face foreign currency controls that restrict you to transfer currency.  

Higher fees

Trading in foreign markets can be very expensive than trading in the domestic market.

Less information

When you invest outside, you will be served with less information as compared to the information you would receive from the domestic market. 

Various liquidity levels

Different trading hours and volumes in foreign markets result in limiting liquidity.  

Social, Political and Economic Events

Elections, Military actions, Diplomatic relations can significantly impact your investments in foreign economies.

Best Chinese Stocks 

Discussing some best Chinese stocks to buy and watch, not just any securities on the basis of news or the sentiment of traders varying with market trends. 

Investors should look at the companies that keep generating problem-solving products and services. Invest in stocks that are thriving at the growth of 25% annually or quarterly. Such stocks are subjected to lower risks and have the ability to perform with a better track record in a steady manner in the long term. 

Traders can begin with stocks with strong earnings growth, such as Alibaba or Pinduoduo stock. In case, they are not profitable, try to look for rapid revenue growth as with Nio stock. The best stocks in  China possess strong technicals with superior price performance over time. And it is much better to look at the stocks which are around proper buy points from bullish bases.

Whether it is an EV name like Nio and Xpeng or a regulatory crackdown Alibaba or Didi, US-listed Chinese stocks have underperformed in 2021. Some of the best stocks performed across many industries are:

  • Alibaba (BABA)
  • JD.com (JD)
  • Tencent (TCEHY)
  • Tencent Music Entertainment (TME)
  • KE Holdings (BEKE)
  • Pinduoduo (PDD)
  • NetEase (NTES)
  • Trip.com (TCOM)
  • Dada Nexus (DADA)
  • Bilibili (BILI)
  • Joy (YY)
  • Vipshop (VIPS)
  • Baidu (BIDU)

But, Chinese stocks are under the radar once again after the subtle attempt to recover. So, let’s analyse the best five Chinese stocks you can trade on.

Li Auto Stock

Li Auto is one of the biggest Chinese electric vehicle manufacturers, headquartered in Beijing, a fierce competitor of other global EV makers like Elon musk’s Tesla (TSLA).

Li is thriving with huge sales growth because of one of its current models Li One SUV. Li One is a hybrid model, with a small gasoline engine that makes it one step ahead of its competitors. Li IPO was opened in July 2020 to a record level as it made a stellar debut on the stock market. Li Auto is one of the high valued growth EV stocks. 

Li is also planning to introduce its new model of large hybrid SUV in 2022.  

BYD Stock

BYD Co. is also a great Chinese EV manufacturer, making cars, buses, hybrid and EV batteries as well. Warren Buffett’s Berkshire Hathaway (BRKB) is a longtime investor in BYD. BYD is the most profitable among Li, Nio and other EV makers. 

Nio Stock

Nio stock is not as profitable as BYD, but it is the most established Chinese EV startup. Currently, Nio is manufacturing three electric vehicles ES6, ES8 and the Crossover EC6. The company is soaring at its revenue. 

Nio is planning to launch its new vehicle of the high-end segment, EV sedan ET7, in 2022.

Sohu Stock

Sohu is a Chinese mobile gaming firm, going public in July 2000. Sohu’s revenue growth touching the roof. It is one of the great options for traders looking for Chinese stocks.

Weibo Stock

Weibo is a popular social media platform in China like Twitter. Weibo’s revenue and profit keep accelerating after the blow of the pandemic. WB stock has a market cap of around $14 billion. 

Bottom Line 

China implemented free-market reforms in 1979 and opened for foreign trade. China is the major exporter of tech and electronic products and is positioned as the world’s largest manufacturer. The Chinese stock market has great growth potential for a broad range of diversified industries in future. 20 years down the line, china would be the greatest economy in the world. In this century, China plays a vital role in the global financial market. China is thriving at entrepreneurial activities. And this is one of the major reasons, why foreign traders should start to look at the Chinese market.

As global stocks and bonds already contain Chinese securities, many investors who have diversified portfolio do not even realise that they already hold Chinese securities. That means the trader with a global portfolio will get exposure to China in any way through some tech giants and companies like Nike. Shanghai Stock Exchange is one of the three major stock exchanges practising independently in the people’s republic of China. The major criteria for the inclusion of stock in the shanghai exchange is that company’s total share capital must not be less than Renminbi (RNB) 50 million. 

There are two types of shares listed in SSE, A shares and B shares. Only B share is open to trade for foreign investors and is quoted in USD. A share is restricted to only local investors but still, foreign investors can trade in A shares with certain limitations under the Qualified Foreign Institutional Investor (QFII) program.

China can impose cybersecurity reviews on companies specifically data-centric and technology-oriented listing overseas.  Companies listed in Hong Kong appear to be from any impositions, which means there are only few companies listing in the U.S. that move forward. It is very important to understand the risks of the Chinese stock market before investing in china. 

Identify the best Chinese stocks. Investors should look at the companies that keep generating problem-solving products and services. Invest in stocks that are thriving at the growth of 25% annually or quarterly. Such stocks are subjected to lower risks and have the ability to perform with a better track record in a steady manner in the long term. 

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