August 16th, 2009
04:53 AM GMT
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HONG KONG, China - Confused by the rules and regulations of China's stock markets? You are not alone.

Probably one of the most common questions I am asked as Asia Business Editor is how to invest in China, especially its stock markets. The markets are up more than 80 percent this year. With the world economy in turmoil, many investors see China as a bright spot on an otherwise dark landscape. They want in.

Market watchers debate if China's stock markets are headed into bubble territory and warn that trading is still a new phenomenon in the country. Information is scarce, spotty, and often only in Chinese. Market swings are extremely volatile.

But with that warning in mind, here is a little guide to help the intrepid better understand China's stock investing ABC's.

A-shares: Stocks of Chinese companies listed in mainland China - in Shenzhen and Shanghai. These shares are sold in Chinese yuan, largely to local investors. Foreign individual investors cannot buy A-shares directly. International institutions can, but with limits. "China has a very restrictive policy in terms of allowing foreign investing into the local stock market," explains Peter Alexander of Shanghai-based Z-Ben Advisors. "They don't actually need foreign investors because there is enormous amount of demand locally." Alexander suggests going through a bank or a mutual fund.

B-shares: B-shares are also stocks of Chinese companies listed in Shenzhen and Shanghai. These stocks were originally meant for foreign investors and are sold in U.S. and Hong Kong dollars. The B-share market never really took off in the way the Chinese government intended. Chinese companies looking for foreign funds often choose instead to list on the Hong Kong stock market. The government has recently loosened the rules to allow more domestic investors to buy B-shares though the number of companies is pretty small.

H-shares: If anyone wants to trade in Chinese stocks directly, Alexander says Hong Kong is the place to do it. "Over the past decade, a number of Chinese companies have begun to list on the Hong Kong market," he told me. "Banks, petroleum companies, every type of industry, big companies, very liquid." These shares trade in Hong Kong dollars and are governed by international standards, so buying and selling H-shares is more transparent. Information on these listed companies, Alexander says, is easier to find.

ADRs: American Depositary Receipts. These are shares of non-U.S. – in this case Chinese - companies listed in New York. Investors can buy big Chinese names such as China Mobile or PetroChina but the selection is limited.

Investing in Chinese companies is a bit of a letters game - and, certainly, a risky one.



soundoff (8 Responses)
  1. Shan Saeed

    I would like to add few more in this roster....

    S-Shares of Chinese companies listed on singapore stock exchange
    L-Shares of Chinese companies listed on london stock exchange
    T-Shares of Chinese companies listed on tokyo stock exchange

    Apart from A,H whereby some companies are only listed on A and not on H....While some are only listed on H but but on A...........

    However, if you analyze the chinese stock market, I think it is more open now and offering great returns to investors in general. Chinese investors are parking billions and billions of yuan eveyday in their stock market with calculated risk. Let me share something with the readers.
    Petro China was set up by Goldman Sachs..Investors made a killing and made 1000% return in 4 years time. Whenever, chinese government has backed certain industry, the companies shares have soared.

    Look a the Chinese power industry. In 1979, the government rigidly controlled electric power production. Only 60% of the country's small towns and villages had electricity – leaving 400 million people in pre-industrial conditions.

    For the next two decades, the government focused on a massive electric-infrastructure program. Even so, by 1998, 14,000 villages and more than 8.8 million households were still without electricity...
    Jim Rogers-the commodity guru, in his book A Bull in China, calls that decision a watershed moment for China's power industry. The five resulting companies, China Power Investment, China Huaneng Group, China Guodian, China Datang, and China Huadian were huge successes. By 2005, more than 99% of the country's small towns and villages had electricity.

    This went unreported in Wall Street Journal, New york Times and Chicago Tribune. China's government is providing an enormous boost to its mining industry: In April 2009, the country's Foreign-Exchange Agency announced the purchase of 16 million ounces of gold for state coffers. It wants to diversify its reserves, replacing some of its U.S. dollars with something tangible – like gold.

    Invest in those shares backed by the chinese government which is the richest governments on earth and you can make a profit out of your investment....

    Shan Saeed
    Uni. of Chicago graduated
    MBA with Honor's Roll

    August 28, 2009 at 11:18 am |
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    February 9, 2010 at 10:13 pm |
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    This is the reason I read bysiness.blogs.cnn.com. Stunning post.

    March 9, 2010 at 8:48 pm |
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    Since the Czech Republic joined the EU in May 2004, it has attracted more and more investment to the country. So in 2007, is the market still viable for those searching for a Czech Republic investment property?
    Money Stock

    August 6, 2010 at 4:58 pm |
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