China has been the largest single contributor to world growth since the Great Recession in 2008, according to the World Bank. Presently, the country’s rapid growth has captured investors' minds all over the world. The ongoing trade war between China and the US has caused some uncertainty for the future of both countries; however, the ‘Middle Kingdom’ stands still and continues showing steadily outstanding economic performance.
Outstanding economy of China
China is one of the major players in the global arena. All regions of the country differ and each has something special to offer: the provinces in the coastal regions tend to be more industrialised, while regions in the hinterland mainly specialise in agriculture. The economic development of Shenzhen, for instance, is usually viewed as by the global community as the birth of the next Silicon Valley.
The Chinese economy is known to be rather unique, barely resembling its US and European counterparts. Due to the historical and political background of China's developing economy, the country’s public sector accounts for a bigger share of the national economy than the private sector.
Today, the centrally planned economy of the People's Republic of China is the world's largest economy by purchasing power parity and the world's second largest economy measured by nominal GDP. The country has an estimated worth of $23 trillion of natural resources, the majority of which are rare-earth metals and coal. China also has the world's largest total banking sector assets of over $39.9 trillion with around $27.4 trillion held in total deposits.
The country is the globe’s largest trading nation, which plays a key role in international trade, where China is increasingly engaging in various trade organisations and agreements. China is renowned as the world's greatest manufacturer and exporter of goods. Additionally, it is one of the fastest-growing consumer markets worldwide.
International trade comprises a significant portion of China's overall economic performance. Ever since the economic reforms of the late 1970s, China has striven for decentralisation of its foreign trade system to integrate itself into the international trading environment. In 1991, China joined the Asia-Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation in the economic, investment, trade and technology realms. The country became a member of the World Trade Organization (WTO) in 2001. Moreover, it has free trade treaties with a number of states, including the Association of Southeast Asian Nations (ASEAN), Switzerland, New Zealand, Australia, South Korea and Pakistan. In 2015, China initiated the founding of the Asian Infrastructure Investment Bank headquartered in Beijing.
China's investment climate has changed drastically during its economy reorganisation. While the communist country controls many state-owned enterprises, its free market policies have encouraged a large amount of foreign investment. The country aimed to eliminate economic barriers by opening up some sectors that had previously been closed to foreign companies. New regulations, laws and administrative measures are issued daily in order to bring these commitments to life.
Foreign investments, both inward and outward, remain a strong element in China's rapid expansion in world trade. As China's economic importance grows, so does the attention of global investors.
Why investors choose China in 2019
China is usually characterised as a global superpower. The irresistible rise of the country comes with a lot of investment opportunities. Here are some of the reasons to choose China as your next investment destination:
Overview of the Chinese Stock Exchanges
Now, you might wonder how to invest in chinese stocks. For this, you have to first understand how the Chinese Stock Exchanges work.
There are two stock exchanges on the mainland: the Shanghai stock exchange and the Shenzhen stock exchange. These were opened by the Chinese government in 1990 as a way of modernising China's economy. Trading hours for both exchanges are from 9:30 am to 3:00 pm, with a 90 minute break from 11:30 am to 1:00 pm local time (GMT+08:00) excluding weekends and national holidays.
It is important to note that on the Chinese exchanges, stocks fall into two categories: "A" and "B" shares. “A” shares are priced in the local currency, while “B” shares are quoted in foreign currencies. The Chinese government has been planning to eventually merge these two types of Chinese shares in the future.
The Shanghai Stock Exchange (SSE) is China's largest stock market and the world's 4th largest stock market by market capitalisation. It is a non-profit organisation directly controlled by the China Securities Regulatory Commission (CSRC). The securities listed on the SSE are stocks, bonds and funds. Most of the listed shares are those of the large state-owned companies responsible for China's economic growth.
The exchange’s main indices are:
The SSE Composite Index: a stock market index of all stocks (both types “A” and “B”) that are traded on the SSE. It is commonly used as an indicator to reflect the SSE's market performance.
The SSE 50 Index: representing the top 50 companies by "float-adjusted" capitalisation. The SSE 50 is usually regarded as the blue-chip index of the exchange.
The Shenzhen stock exchange (SZSE) is another Chinese stock exchange, which trades the shares of smaller, more entrepreneurial companies with an emphasis on tech-related businesses. The exchange’s main index is the Shenzhen Composite, also known as the SZSE Component Index, which includes all 500 stocks traded on the SZSE.
In addition to the stock exchanges in Mainland China, there are two other well established and successful stock exchanges located in Hong Kong and Taiwan.
The Hong Kong Exchanges and Clearing Limited (HKEx) is a stock exchange and futures market. It is Asia's third-largest stock exchange in terms of market capitalisation. It lists companies from Mainland China, Hong Kong, Taiwan, Malaysia, Singapore, Macau, the US and many more. In 2017, the physical trading floor closed, due to the shift towards digital trading.
In November 2014, the Chinese government linked the Hong Kong exchange with the Shanghai exchange through the Shanghai-Hong Kong Connect program. The program allows foreign investors to buy shares of Chinese companies.
The Hang Seng Index is the main index of the HKEx. It is a free float-adjusted index comprised of the 50 largest companies listed on the HKEx. It is the main indicator of the overall market performance.
The Taiwan Stock Exchange Corporation (TWSE) is a financial institution located in Taipei, Taiwan. Established in 1961, it began operating as a stock exchange in February 1962.
The exchange’s main indices are:
The Taiwan Capitalisation Weighted Stock Index (TAIEX): this is the stock market index that measures the performance of all the stocks listed on the TWSE. It is the most popular and frequently quoted index of stock performance of Taiwanese public companies.
The FTSE TWSE TW50: a capitalisation-weighted index of stocks, comprising 50 of the most highly capitalised blue-chip stocks. Its is a joint venture between the TWSE and FTSE Group, representing nearly 70% of the Taiwanese market.
Chinese stocks to invest in
When browsing the China Stock Market there is a large variety of stocks to invest in; your choice simply depends on your personal preferences, goals, and trading strategies. The shares of China's leading technology giants like Alibaba – BABA, Baidu – BIDU, Bilibili Inc. – BILI and Tencent Holdings – 0700 are available for foreign investors and traders through various financial instruments. You can also find China Concepts Stocks listed on the world’s largest stock exchanges, from the New York Stock Exchange (NYSE) to the London Stock Exchange (LSE).
If you are not the type of person who is interested in separate investments, you can consider investing in the major stock indices we have mentioned earlier. That is the beauty of investing in China – endless variety and diversity.
How to trade CFDs on Chinese stocks
Trading Chinese stocks is easy with contracts for difference (CFDs). A CFD is a type of derivative and contract between the seller and the buyer that allows leveraged trading on a variety of markets, providing greater exposure to financial markets. Since CFDs are a leveraged product, gains, as well as losses, are magnified.
When you trade CFDs you don’t actually buy the underlying asset itself, but work with the buying and selling prices of a given financial instrument in order to profit from the price difference when opening and closing the trade. Using CFDs to trade Chinese stocks or indices will allow you to go long or short on the market without having to deal with conventional exchanges.
Check out Capital.com to learn the latest information and trade CFDs on Chinese stocks.