How to Invest in the Chinese Stock Market

For years, investors have been trying to capitalise on China’s economic boom. However, gaining access to the country's two stock exchanges, the Shanghai Stock Exchange and Shenzhen Stock Exchange is difficult for foreign investors. 

Fortunately, there are a variety of ways to gain exposure to the Chinese stock market. One way is to invest in the popular Shanghai Index, also known as the SSE Composite Index. Learn how to invest in this index and the pros and cons of investing in the Chinese stock market.

What is the Shanghai Index

The Shanghai Composite Index, also known as the Shanghai SSE index is a stock market index of all the stocks that are listed on the Shanghai Stock Exchange. The composite index lists both A shares and B shares - what’s the difference?

• A-shares are publicly listed Chinese companies that trade on both the Shanghai Stock Exchange and the Shenzhen Stock Exchange - two of China’s main stock indexes. These shares are typically traded in Renminbi (Chinese Yuan).
  • Only residents of the People’s Republic of China, and investors under the Qualified Foreign Institutional Investor program or Stock Connect programs can trade these shares. 

• B-shares represent publicly listed Chinese companies listed on both stock exchanges with the stocks listed on the Shanghai Stock Exchange priced in US dollars and the stocks listed on the Shenzhen Stock Exchange priced in Hong Kong dollars.
  • These shares can be traded by non-residents of the People’s Republic of China who have the appropriate foreign currency dealing accounts.

The Shanghai Index itself has different variations. For example, the Shanghai 50 index is an index of the top 50 companies (measured by float-adjusted capitalisation) listed on the stock exchange. 

There is also the Shanghai A Index, Shanghai 180 index and the Shanghai 300 index which is actually related to the CSI 300 index which is a capitalisation-weighted stock index tracking the performance of the top 300 companies listed on both the Shanghai and Shenzhen stock exchanges. 

Companies Listed in the Shanghai Index

There are currently 2,116 Chinese stocks that make up the Shanghai Composite Index. The top 5 largest Chinese stocks in the Shanghai Index include:

You can invest in some of these Chinese stocks through an Associated Depositary Receipt (ADR). An ADR is essentially a certificate that is issued by a US depositary bank. The certificate represents a fixed amount of shares of a foreign company. You can trade these certificates, or ADRs, on the US stock market just like any other stock. This provides investors with another way to gain exposure to the Chinese stock market. 

What are Chinese Stock Market ETFs

Chinese stock market ETFs essentially provide investors exposure to China’s stock market indices and subsequent stocks like those listed in the Shanghai Index and Shenzhen Index but from just one single investment. For example, the SPDR S&P China ETF aims to track the performance of publicly traded companies that are domiciled in China and that are available to foreign investors. 

It does this by tracking the performance of the S&P China BMI Index. Many fund management companies would track the performance of indexes like the latter as well as the likes of the Dow Jones Shanghai index, the FTSE China 50 index and others. In the fund’s factsheet, this could include China A shares that are available via the Shanghai-Hong Kong Stock Connect program.

Some of the SPDR S&P China ETF's top holdings include Tencent, Alibaba, Baidu and NIO. However, in the top 10 holdings, there are also two companies that are from the Shanghai SSE 50 index. This includes Ping An Insurance and the Industrial and Commercial Bank of China. Chinese stock market ETFs provide a unique way to gain exposure to the Shanghai and Shenzhen indexes, as well as the broader economic story of China. Learn more in the Best China ETFs article.

How to Invest in the Chinese Stock Market

You can invest in a range of Chinese stock market ETFs that track the performance of the Shanghai Index, as well as a wide range of Chinese stock ADRs with Admirals. Follow these steps to get started. 

1. Create an Invest.MT5 account. This can be a demo account or a live account with a minimum deposit of just €1. 
2. From the online client portal area, click on Invest next to your account to open the web-based MetaTrader 5 trading platform.
3. In the search box type the instrument you wish to trade on and the chart of the instrument will open.
4. Click on Create New Order to open a trading ticket where you can set your volume (transaction size) and other inputs.

Conclusion

China was one of the first economies to recover from the coronavirus pandemic causing many analysts to forecast strong economic growth for the foreseeable future. Accessing markets in China can be difficult for foreign investors. However, there are still ways to gain exposure to the Chinese stock market. This can be through buying China stock ADRs or by investing in China ETFs that track the performance of an index such as the Shanghai Index.

It is worth noting that the Chinese stock market can be very volatile so risk management is key when building an investment portfolio with Chinese stocks and ETFs. 

Continue Reading:

• How to Invest in China
• Best China ETFs
• Trading the Chinese Financial Market
• What are ETFs?
• How to Build an Investing Portfolio

FAQs on the Chinese Stock Market

About Admirals

Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals’ investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following:

• This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
• Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content. 
• With a view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for the prevention and management of conflicts of interest. 
• The Analysis is prepared by an independent analyst, Jitanchandra Solanki (analyst), (hereinafter “Author”) based on their personal estimations.

• Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
• Any kind of past or modelled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed. 
• Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.