Boosted by a huge trade surplus and new economic freedoms, mainland China is growing at a rapid pace. However, because the Shanghai exchange is closed to direct investment by foreign individuals, the only way to invest in the market is through Chinese shares or funds traded in the United States, as well as US-based institutional investment companies.
Do some research into the Chinese economy and the companies listed on the Shanghai Stock Exchange. The exchange publishes its major indexes as the SSE 180 and the SSE 50, representing the largest public companies available for trading. Instead of alphabetical ticker symbols, Shanghai identifies companies by a six-digit code; the Shanghai Pudong Development Bank, for example, is represented as 600000. Many of China's largest companies trade on US exchanges as well; Noah Holdings Limited, a financial company, trades under NOAH on the New York Stock Exchange.
Open a brokerage account and begin trading Chinese shares or exchange-traded funds listed on US exchanges to get a feel for the Shanghai and Shenzhen stock markets. Exchange-traded funds hold a basket of Chinese stocks and rise or fall with the general direction of the Shanghai exchange. The individual company shares trading in the United States will move according to investor demand, company reports and economic statistics released by the Chinese government.
Trade index funds that match the performance of the Shanghai market index. The SSE 180 Index Fund matches the index composite, buying new shares when the SSE 180 adds a new security, and selling them off when a company is de-listed from the index. The fund also pays dividends from the shares it holds. The China Region Fund is an open-end mutual fund that invests in companies either located in China or companies in Asia that do most of their business with China.
- China tightly controls the amount of foreign investment in the Shanghai and Shenzhen stock exchanges. As a result, individual investors do not have access to the market; only institutions such as banks, insurance companies and mutual funds can take part. By the terms of the Qualified Foreign Institutional Investor program, the Chinese government sets a quota for all foreign institutions investing in stocks, bonds and other securities.
- Trading Chinese stocks in the United States entails the usual investment risks, but investors also need to be aware that Chinese companies are not subject to the same disclosure requirements as US companies. China has relatively lax accounting rules, and many Chinese companies do not issue regular financial reports.
Items you will need
- Brokerage account
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