If you are a global investor, you can’t ignore China stock markets today, especially China A Shares.

The irony is that when the US stock market made a 1% movement, it will be the headline news the next day in the Straits Times. But when China’s stock market made a 5.6% return in a single day on Feb 25, 2019, the report is largely muted.

Unlike the glorious day in earlier 2000, China stock is an unloved market. Most Singaporeans don’t invest in China stocks. To a certain extent, some Singaporean investors carry a hatred for China stocks. Ask those people who stay in Singapore markets for long, they can describe the boom and doom of S-Chips vividly (S chips refer to the Chinese companies listed on the Singapore Exchange). And they will tell you to stay away from China stocks.

This is how retail investors fail. They fall in love with the stocks that made money (e.g. US tech stocks) and hold grudge against what failed them. Stocks are neutral, humans are emotional. This explains why China Life and China Taiping insurance face uphill tasks to promote their much superior products in Singapore.

The choice is yours. Amidst the US-China trade war, there is a divergence of stock markets of the two largest economies in the world. Earlier this year, I predicted that China stock market would have a double-digit return in 2019, and the Shanghai Composite index has already rallied 25% in less than 3 months’ time.

All-stars aligned

In fact, when I advised my clients to buy into China A shares since Nov 2018, many gave it a shrug and some resisted. In my recent investor’s letter to my clients, I quoted Jesse Livermore, Legendary American Trader,

There is only one side of the market and it is not the bull side or the bear side, but the right side.

To explain the rally is a big topic, I will dedicate another post to this. But in a nutshell, all stars aligned basing on my Global Momentum Compass (GMC).

  • Fundamental: Comparing to US stocks which are at an all-time high, China stocks are considered “value bargain” by global institutional investors
  • Technical: the 5.6% rally on February 25 broke the one-year moving average line of China’s stock market. This will attract the interest of momentum traders, both humans and robots.
  • Fund Flow: Financial institutions, especially passive fund managers such as ETF providers, have to buy more China stocks because MSCI quadrupled weighting of China A-shares in its global benchmarks

Again, many people will say that the rally is over-done, and the upside is limited. But the same people do not seem to bother that the US market had the longest bull run for nearly 10 years.

Again, it is up to you. I can’t tell you when the US market will crash or the tech bubble will burst, but the risk/reward just doesn’t make sense to me.

China stock market was closed to the foreigner

Having said this, buying China stocks was not as simple as it seemed if you were a foreigner.

For those who don’t know, China’s financial market is not freely tradable like US and European stock markets. It was closed and only for domestic investors. If you heard about how George Soros broke the Bank of Thailand and how Goldman Sachs rules the world, you know it was guarded for good reason.

But to join the global trade, China has to open capital markets. So China had a back door which was Hong Kong. Most investors seeking exposure to China used to get access to China in Hong Kong stock exchange via H-Shares.

In 2014, China opened Stock-Connect which made it possible for foreign individuals to invest in China A-shares. I brought this topic up in this post, which was right before the 2015 rally.

Why investing in China A-Shares

In Chinese, there is a saying “肥水不流外人田” (keep the goodies within the family). So if the S-chips listed in Singapore have questionable corporate governance or profitability, it should be well expected.

Even the H-shares are dominated by financial institutions and property developers.

Onshore markets like the Shanghai and Shenzhen stock exchanges offer a much larger universe of Chinese companies. China A-shares represent the domestic market and are retail-focused. You may be already familiar with some of the names such as Kweichow Moutai, Mongolia Yili, Midea and Shanghai International Airport.

#1. Buying China A shares through ETF

The easiest way to get access to the China market is through an ETF. There are two popular indices to track the China stock markets.

FTSE China A50 Index

China A50 index was a foreign institutional investor’s darling under the old Qualified Foreign Institutional Investor (QFII) scheme. It comprises the largest 50 A Share companies listed on the Shanghai and Shenzhen stock exchanges.

Unknown to many people, Singapore does have a China A50 ETF namely XT China50 US$ ETF, which was issued by Deutsche Bank and Listed on SGX Mainboard on 19 February 2009. Unfortunately, due to lack of interest from the retail market, it was unpopular and there are days with zero transactions.

On contrary, the interest from professional investors in China market is extremely hot and you may be surprised to know the only offshore Futures (for now) on China A-Share Market in the world is listed in Singapore.

Every day, Billions of dollars are exchanged hands in Singapore Exchange for the SGX FTSE China A50 Futures contract. It is also one of the rare instruments which you can use to “short” the China stock markets.

CSI 300 China-A Shares Index

CIS 300 is compiled by the China Securities Index Company. It is an index to track the 300 largest and most liquid Chinese shares traded on the Shanghai and Shenzhen exchanges. There are quite a lot of options for this.

Hong Kong-listed ETF

US-listed ETF

#2. Buying China A-Shares through unit trust

The main benefit of using an actively managed unit trust fund is to explore the inefficiency of the China stocks markets. China A-share market is still dominated by local retail investors and they obviously don’t have the same knowledge and resources comparing to the institutional fund managers.

Although there are many China equity funds listed in Singapore, you need to be careful that not all funds focus on China A-shares.

China equity was a loosely used term that could include H-shares or Taiwan shares. The funds listed in Singapore with true China A-shares exposures are:

  • Aberdeen Standard SICAV I – China A-Share Equity
  • Allianz China A-Shares
  • Blackrock China A-Share Opportunities
  • Fidelity China Focus A
  • JPMorgan Funds – China A-Share Opportunities

#3. Buying China A-Shares directly

If you think you are up to the game, you can buy some of the Shanghai-listed shares directly through your Singapore stockbrokers nowadays.

If you want to find out which stocks you can buy, go to this link from Hong Kong Exchange, look for the list under “Northbound Trading”.

Stay with a portfolio approach

In my January investor’s update, I shared this chart. My personal belief is that the China stock market may enter a significant bull run. But it doesn’t mean that I will go all into this market.

Investing is a marathon, not a sprint.

You should always stick to a portfolio approach. That is why I developed Global Momentum Compass so I won’t be carried away by such excitement. You can subscribe to my newsletter or Telegram Channel for regular updates.

If you are interested in finding out more about how I help my clients build a globally diversified portfolio. Submit your request via the form below.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

  • Very nice article! I have exactly same feeling that US market risk is too high due to 10 years long bull. It makes a lot sense to invest some Chinese ETF to reduce some risk.

  • Thank you for an excellent article on china investment. I have been investing both through 3188,as well as direct investments in ping an,cmband several other h shares.,also a large stake in link reit,bought 10 years ago.all together this is 35%of my portfolio ,is this too concentrated? I dont invest in the US as its tax policy on bonus residents are a bit onerous.

    • Hi, Vincent,

      You need to look at your portfolio as a whole to determine if it is overly concentrated in China stocks. The key thing is not the absolute % but the correlation between various assets in your portfolio.

      At the same time, market timing is important. The prices you enter and exit play an important part too. The percentage to allocate to China stocks should depend on the opportunity cost. You need to check if there is another asset class which gives you a better risk-adjusted return for the same period.

  • Hi Ivan,
    I have just watched the movie NewMoneyMovie on YouTube and its saying ti Invest in Chinese Companies for a 1,2,3,4,5 years.Are you able to assist me in investing in these companies.I have only small amounts of monies of £200-£250 to invest.

    Best Wishes
    Nigel Fletcher

  • Hello from Australia. I like the idea of more A shares. I cannot get them easily. Is there a good way to buy funds for 5-7 year time horizon please ?

    • Hi, Kenneth,

      Vanguard Total China Index ETF (3169) is rather new and it is not a China A-share ETF. According to its factsheet, it has A-shares 45.7%, H-shares 18.9%, P-chips 15.9%, N-shares 12.9%, Red chips 6.0%, B-shares 0.5% & S-chips 0.1%.

      Thus it does not meet my criteria.

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