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 Admiral Markets. 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

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