How to invest in Chinese stocks? There are several ways you can invest in Chinese stocks. In this post we are going to focus on the easiest two. The first one being American Depositary Shares (ADR) and the other being through index funds and ETFs.
Invest in Chinese stocks through American Depositary Shares
Stocks of Chinese companies can be found on the stock exchanges in the USA. Some companies can be found on other exchanges as well. For example, you can buy Alibaba from Germanys stock exchange.
The biggest Chinese companies can be found on US stock exchanges as well, such as Alibaba, Baidu, Tencent, and Pinduoduo. On the time of writing this post, there are 254 Chinese companies listed on the US stock exchanges (Source). Meaning, there are a lot of options for you to invest in Chinese companies through the US stock markets.
Invest in Chinese stocks through index funds and ETFs
Another option to invest in Chinese companies is buying index funds and ETFs that own them. One option is to buy an index fund or ETF that follows the MSCI Emerging Markets Index. There are other countries stocks on the index as well, not just Chinese, but at the time of writing this, around 32% of the index is in Chinese stocks, and 16% is in Taiwanese stocks. There are funds as well that focus entirely on Chinese stocks, if that is what you are looking for.
Investing in Chinese stocks through already diversified index funds or ETFs might be a better option for beginners. It will reduce the risk of losing when you have several different companies in your portfolio at once, instead of just one or a few.
If you plan on investing in Chinese stocks through index funds or ETFs, choose one that has low costs, and it will save you a lot of money in the long run. The costs will eat up a big chunk of your returns in the long term if they are too much. I have a post comparing the costs of index funds in the long run. You can read it here.
Risks of investing to Chinese stocks
There are risks involved in every investment. However, investing in Chinese stocks might carry some extra risk, what investing in other countries doesn’t have. One of these being, that Chinese companies do not have to open their books to offshore authorities. Meaning, they can more easily fabricate their numbers.
There have been some cases in the past, where Chinese companies fabricated their whole business operations, and when the truth came out, the prices of the stocks fell through the floor.
Because of this, and other factors there has been constant news about the delisting of Chinese companies from the US stock exchange. There has also been some issues between the bigger Chinese companies and the Chinese government. All these things can affect the prices of Chinese companies negatively.
Even that there are more risks involved when investing in Chinese companies, there is a lot of potential as well, at least in my opinion. China has its own set of big technology companies, and it has over a billion residents.
Meaning, they don’t have to rely on getting customers from other countries so much, since their own customer base is so huge as well. China also is still growing faster than some of the developed countries.
Event that there are additional risks involved when investing in China, that might bring extra opportunities as well. Chinese stocks are not at the moment priced as expensively as stocks from other countries, if we look at P/E numbers and such. There are big investors as well, who have faith in Chinese stocks.
Other investing-related posts can be found here.
Hopefully this was helpful to you, have a nice day.
This is not investment or financial advice. Always do your research before risking your hard-earned money. Past returns are not a guarantee of future returns