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Investing in Chinese stocks
Its economy is booming, but US tensions could force Chinese stocks off American exchanges.
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 Trade 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.
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.
- China Gold International Resources Corp. Ltd. (TSX: CGG)
- GLG Life Tech Corporation (TSX: GLG)
- Hanwei Energy Services Corp. (TSX: HE)
- Minco Silver Corporation (TSX: MSV)
- Silvercorp Metals Inc. (TSX: SVM)
- Axion Ventures Inc. (TSXV: AXV.V)
- CF Energy Corp. (TSXV: CFY.V)
- China Education Resources Inc. (TSXV: CHN.V)
- Hylands International Holdings Inc. (TSXV: HIH.V)
- IEMR Resources Inc. (TSXV: IRI.V)
- Mountain China Resorts (Holding) Limited (TSXV: MCG.V)
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.
- China Evergrande Group (EGRNF)
- China Railway Group (CRWOF)
- China National Building Material Company Limited (CBUMY)
- CStone Pharmaceuticals (CSPHF)
- China Coal Energy Company Limited (CCOZY)
- Industrial and Commercial Bank of China (IDCBY)
- Ping An Insurance (PNGAY)
- CITIC Ltd (CTPCF)
- Ganfeng Lithium Co., Ltd. (GNENF)
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:
- iShares China Index ETF (TSX: XCH)
- BMO China Equity Index ETF (TSX: ZCH)
- Vanguard FTSE Emerging Markets All Cap Index ETF (TSX: VEE)
- CI ICBCCS S&P China 500 Index ETF Non-Hedged (TSX: CHNA-B)
- Xtrackers Harvest CSI 300 China A-Shares ETF (NYSEARCA: ASHR)
- KraneShares CSI China Internet ETF (NYSEARCA: KWEB)
- SPDR S&P China ETF (NYSEARCA: GXC)
- iShares MSCI Taiwan ETF (NYSEARCA: EWT)
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.
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.
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