In most cases, investing in a particular country is a pretty straightforward affair. French stocks trade in Paris, Japanese stocks trade in Tokyo, and Brazilian stocks trade in Sao Paulo. Sounds easy enough, right? Investing in China is a little more complicated. When someone talks about the “Chinese market” or “Chinese stocks”, they may be referring to one of several markets or types of stocks. At first glance, the menu of investment choices in China can seem like a confusing alphabet soup of share classes, each with its own unique characteristics. Let’s take a closer look at each one.
Chinese A SharesChina’s “A Share” market refers to stocks that trade on the Shanghai and Shenzhen exchanges. These companies are incorporated in mainland China and their shares are denominated in the local currency, or renminbi. For individual investors, the gyrations of the A share market may be fun to watch, but these stocks are strictly off limits to non-Chinese investors. For professional investors, however, there are a few ways around this restriction.
Chinese B SharesHere’s where it starts to get confusing. Some Chinese companies are listed in Shanghai and Shenzhen, but their shares trade in U.S. dollars. These stocks, known as “B shares”, were historically designed to give Chinese companies a way to raise capital from overseas. B shares also allowed foreign (non-Chinese) investors to invest in the market without the restrictions associated with A shares. Over time, however, the B share market has become relatively illiquid.
Hong Kong H SharesH shares are also Chinese companies, but these securities trade on the Hong Kong Stock Exchange rather than on the mainland, and they are priced in Hong Kong dollars. While it is still relatively uncommon, and a somewhat cumbersome process, it is technically possible for individual investors to buy and sell shares on the Hong Kong market.
Chinese Stocks in New YorkAs investor interest in China has grown in recent years, a new crop of Chinese stocks has emerged. These are companies that are headquartered in mainland China, but have chosen to list their shares on the New York Stock Exchange or Nasdaq. There are currently nearly 70 such Chinese companies listed in the U.S., and the list continues to grow. For individual investors, shares of New York-listed companies are by far the easiest way to get started investing in Chinese stocks.