How To Invest In China

To invest in China and Chinese stocks you will need an account that lets you buy ETFs like FXI, MCHI, KWEB, ASHR or trade individual shares like Alibaba, Tencent or Baidu. This guide explains what these ETFs are and how you can buy Chinese stocks. It’s important to note that buying physical Chinese stocks is quite hard for UK investors, so in this guide, we give some alternatives to direct Chinese investing.

🧑‍🎓Follow these five steps if you want to invest in Chinese stocks

1. Open an investment account with a stock broker that offers access US ETFs that track China like Hargreaves Lansdown, AJ Bell or Interactive Investor. Or if you want to trade individual Chinese shares open an account with a trading platform like IG, or City Index that offers deriviatives.
2. On the platform search for ETFs like FXI, MCHI, KWEB, ASHR or individual chinese stocks like Alibaba, Tencent or Baidu.
3. Add these stocks to your portfolio (it’s sensible invest a a few different stocks and ETFs so you build diverse exposure and don’t have all your eggs in one basket.
4. Enter the number of shares you would like to buy (some platforms also let you enter a monetary amount and round the amount of the shares down to the nearest whole one).
5. Click buy and you will own a range of chinese related stocks and ETFs.

🤔Note: Watch out for exchange rate exposure

As chinese stocks are demoninated in Chinese Yuan, but the ETFs are demoninated in USD, you will have to convert GBP to USD and also be mindful of how the price of the CNY, performans agains the USD and the GBP. If the currencies move 20%, this will have an impact on your profit and loss on your Chinese investments. Over 1 year, the GBPCNY price has moved up 13% or example.

⚠️What to watch out for! Chinese Derivatives

If you want to buy individual Chinese shares, the easiest way is to buy a derivative based on them this could either be an ADR (American Depository Receipt), which is a USD-demoninated version of the stock on the NYSE. Or, for Chinese stocks that do not offer these you can trade an OTC CFD, but that comes with leverage. If you are a new provider, it is worth choosing an platform that lets you limit your leverage like eToro.

📈Which brokers offer access to the direct Chinese markets?

Trading in overseas markets has never been that straightforward for private clients although things are improving by leaps and bounds. Still, a lot of changes of late have been focused on the Americas rather Asian markets.

That said it is possible to find brokers who can deal for you in Chinese markets.

Two good execution-only stockbrokers who trade Chinese securities these are Saxo Markets and Interactive Brokers both of whom have UK based operations.

Saxo Markets also offers access to Hong Kong, Singapore and Tokyo whilst Interactive Brokers offer Indian and South Korean markets in addition to those covered by Saxo.

Both Saxo Markets and Interactive Brokers offer a keenly priced commission structure though there will be minimum ticket charges to take into account.

As to mainland China, foreign retail clients cannot deal directly in mainland Chinese equities. However, many dual-listed stocks trade simultaneously in Shanghai and Hongkong. There are also a growing number of Chinese stocks which are listed or traded in NewYork.

China is something of a closed shop still for foreign retail investors, however, there are plenty of ETFs that track Chinese equities and many of those are available to UK clients to trade including FXI, MCHI, KWEB & ASHR.

Is investing is Chinese stocks safe?

If you managed to deal directly in Chinese stocks it’s quite likely that brokers trading in overseas securities will subcontract their custody arrangements to third parties, though these will typically be specialist clearers and custodians which are often subsidiaries of larger financial institutions, as such it won’t be possible or practical for you to kick the tyres of that custody chain.

However, As a UK customer, however, your funds and securities will be protected by the Financial Services Compensation Scheme, which insures the clients of FCA regulated firms against fraud or failure to a value of £85,000 pounds.

Is now a good time to buy Chinese shares?

China is one of the world’s largest economies and for most of the last twenty-five years, it has been the global engine of growth.

However, the anticipated return to growth, post-pandemic, hasn’t materialised, added to which several large-scale property developers are teetering on the brink of collapse and many local governments are drowning under a debt pile that totals $9.0 trillion.

Chinese equities have underperformed global peers in 2023 ranking 20th in Bank of America’s list of year-to-date returns, and trading more than -5% below their 200-day moving average.

ETFs that track the Chinese Market

iShares China (FXI) – this ETF tracks the 50 largest – and most liquid – Chinese stocks traded on the HK Stock Exchange. Many investors prefer this instrument because it invests in large caps outside China. It is one of the larger China ETFs.

iShares MSCI China (MCHI) – tracks the MSCI China index, which includes HK and some mainland stocks (30%). The largest constituent stock is Alibaba (BABA).

KraneShares CSI China Internet (KWEB) – invests in Chinese Internet companies. This is an interesting choice because if offers exposure to the fast-growing Chinese technology market. The top ten holdings (from KraneShares website) are:

Harvest CSI 300 China A-Shares (ASHR) – tracks the 300 largest Chinese shares traded on the Shanghai exchange and Shenzhen exchanges. Some investors like this choice because A Shares may trade at a premium relative to overseas stocks, like during 2007.

Overall, there are now growing avenues to invest in the second largest economy in the world. Investors should have some exposure to Chine because it offers diversification. Ray Dalio, the hedge fund guru, recently described Chinese investments as ‘bets on both horses in the race’. This makes sense. Emerging markets, of which China is a large component, are still growing faster than developed markets. Readers should take note.

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