Investing in Chinese stocks

Interested in adding Chinese shares to your portfolio? Chinese growth stocks are plentiful and easily accessed from a domestic brokerage account. But the future of these stocks on US exchanges remains uncertain — especially for state-owned enterprises.

What are Chinese stocks?

Chinese stocks originate from companies that are headquartered in China. Like the US, there are multiple Chinese stock exchanges — including the Hong Kong Stock Exchange, the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

How to buy Chinese stocks from Canada

There are a few ways for Canadian investors to add Chinese stocks to their portfolios, including stocks and exchange-traded funds (ETFs).

With an international brokerage account, you can purchase Chinese stocks directly from Chinese exchanges. Not many Canadian brokers offer international trading, but one broker that offers access to Asian markets is Interactive Brokers.

For investors who aren’t ready for an international brokerage account, some Chinese companies list on the TSX and many list on the NYSE and Nasdaq. This is good news for investors in Canada, where a number of brokers offer access to both US and Canadian stock exchanges including Questrade, Scotia iTRADE, Wealthsimple and Qtrade Direct Investing.

ETFs that track Chinese stocks are another way for Canadian investors to diversify their portfolios with a variety of China-based investments.

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Why invest in Chinese stocks?

China’s economy is on the rise, and its businesses are poised for growth. China is the world’s second-largest economy, second only to the United States. It enjoys this position thanks to an average economic growth rate of over 6% for nearly 30 years, making it the fastest-growing major economy in the world.

China is also the world’s largest exporter, boasting an export value of approximately $2.5 trillion USD in 2019, according to Statista. In fact, the country’s year-over-year export growth hovered near 17% from 2002 to 2012.

Around $56.5 billion worth of Chinese goods were imported to Canada in 2019, making China Canada’s second largest import partner. The United States is Canada’s biggest import partner, with roughly $230 billion worth of goods passing over the border in 2019. That being said, China is actually the United States’ biggest import partner, with $435.5 billion worth of goods imported in 2020.

The bottom line? China is a major driver of economic growth and backing. Chinese companies presents a potentially lucrative investment opportunity for Canadian investors.

Risks of investing in Chinese stocks

Chinese stocks present unique risks. Many Chinese companies are state-owned, and ongoing tensions between China and the US could result in Chinese stocks being delisted from US exchanges.

In 2017, there were 102 state-owned enterprises (SOEs) in the Fortune Global 500. Of those 102 SOEs, 75 of them were from China. In fact, there are over 150,000 state-owned enterprises in China, according to the China Journal of Accounting Research. Why does this matter? These SOEs have been accused of receiving unfair advantages, like low-cost loans, while yielding less competitive returns than their privately run counterparts.

China has plans to reform its SOEs, but it’s difficult to say what this reform will look like or what impact it could have on privately held Chinese companies.

And speaking of reform, ongoing tensions between China and the United States have led to the creation of the Holding Foreign Companies Accountable Act: a bill introduced by the US Congress that requires companies listed on US exchanges to declare any connections with foreign governments. The bill also states that companies listed on US exchanges must submit to audits of the company’s financial performance.

For Chinese companies listed on US exchanges, the bill is problematic and could potentially result in numerous Chinese stocks delisting from US exchanges.

Chinese stocks listed on Canadian and US exchanges

Over 130 Chinese stocks trade on the New York Stock Exchange and the Nasdaq. As of February, 2021, there are 11 Chinese companies listed on the TSX and TSXV, all of which are listed below.

You can buy, sell or hold these stocks with a domestic brokerage account the same way you would any other Canadian or US stock. If you plan to buy stocks in a Chinese company listed on a US exchange, you’ll need a Canada-based trading platform that offers access to US stocks.

All Chinese stocks listed on the TSX and TSXV

Current as of April 7, 2021.

Popular Chinese stocks listed in the US (NYSE and Nasdaq)

Over-the-counter (OTC Markets) Chinese stocks

There are many well-established Chinese companies that don’t trade on Canadian or US exchanges. If you hold an international brokerage account, you can purchase shares directly from Chinese markets. Over 150 Chinese companies are listed in American OTC Markets.

What ETFs track Chinese stocks?

Another option for Canadian investors interested in adding Chinese stocks to their portfolio is by purchasing ETFs that invest in Chinese companies. While this is a less direct investment than purchasing individual shares, an ETF that tracks Chinese stocks offers broad exposure to a number of securities as opposed to just one. Some of these ETFs include:

Compare trading platforms

Many Chinese stocks can be purchased from a domestic brokerage account. Narrow down your options by comparing features, fees and research tools.

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Name	Product	Finder Rating	Available Asset Types	Stock Trading Fee	Account Fee	Signup Offer	Table description
CIBC Investor's Edge CIBC Investor's Edge		Finder Rating: ★★★★★ 3.8 / 5	Stocks, Bonds, Options, Mutual Funds, ETFs	$4.95–$6.95	$0 if conditions met, or $100	N/A	An easy-to-use platform with access to a variety of tools to help you trade with confidence.	Go to site View details	Compare	loading Fetching your data...
Interactive Brokers Interactive Brokers Finder Award		Finder Rating: ★★★★★ 4.3 / 5	Stocks, Bonds, Options, ETFs, Currencies, Futures	min $1.00, max 0.5%	$0	N/A	Winner for Best Overall Broker in the Finder Stock Trading Platform Awards.	Go to site View details	Compare	loading Fetching your data...
National Bank Direct Brokerage National Bank Direct Brokerage		Finder Rating: ★★★★★ 4.2 / 5	Stocks, Bonds, Options, Mutual Funds, GICs	$0	$0 if conditions met, or $100	Get $0 commission on all transactions with promo code: finder		Go to site View details	Compare	loading Fetching your data...
Questrade Questrade		Finder Rating: ★★★★★ 4.3 / 5	Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, International Equities, Precious Metals	$4.95 - $9.95	$0	Get $50 in free trades when you fund your account with a minimum of $1,000.	Opt for self-directed investing and save on fees or get a pre-built portfolio to take out some of the guesswork.	Go to site View details	Compare	loading Fetching your data...
Qtrade Direct Investing Qtrade Direct Investing		Finder Rating: ★★★★★ 3.7 / 5	Stocks, Bonds, Options, Mutual Funds, ETFs, GICs	$6.95 - $8.75	$0 if conditions met, otherwise $25/quarter	Get up to $150 sign-up bonus. Use promo code BONUS150. Conditions apply. Ends June 30, 2023.	Low trading commissions and an easy-to-use platform with access to powerful tools and a wide selection of investment options.	Go to site View details	Compare	loading Fetching your data...

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Bottom line

There are numerous ways to invest in Chinese stocks from a Canadian brokerage account. And for those who prefer to invest in Asian markets directly, brokers like Interactive Brokers offer international brokerage accounts.

Before you open an account, explore available trading platforms by fees and available markets to find one that will help you reach your investment goals.

Frequently asked questions

• Do Chinese stocks pay dividends?

  Yes. Some of these include China Mobile (HKEX: 0941.HK), NetEase (HKEX: 9999.HK, OTC Markets: NETTF), PetroChina (NYSE: PTR, HKEX: 0857.HK) and Tencent (NYSE: TME, HKEX: 0700.HK). You can check whether companies pay dividends on sites like Yahoo Finance or by visiting the investors section of companies’ websites.

• What happens to my Chinese stocks if a company delists from a US or Canadian exchange?

  The value of your stocks may change as a result of whatever circumstances led the company to delist (i.e. financial or managerial trouble), but you will retain your share of ownership in the company. Companies forced to delist are typically moved to the OTC market and must change their symbol. Not all brokers deal in OTC stocks. But if your stocks end up in the OTC market, your broker may still allow you to sell.

  Companies that are voluntarily delisting from the TSX (Toronto Stock Exchange) are required to notify shareholders at least 10 days beforehand, giving them time to sell their shares if they choose. If you own shares on US stock exchanges, you should know that the new Holding Foreign Companies Accountable Act may force Chinese companies to make an offer for any outstanding US shares, take themselves private and relaunch on a new exchange.

  If a stock exchange delists a company—an act known as involuntary delisting—it may be because the company is going bankrupt or has failed to meet the exchange’s minimum requirements for being listed. If a company is experiencing financial trouble, you could lose the value of your stock investment if the company doesn’t sell its stock to another party before going out of business.

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