How to invest in Chinese stocks from Australia
The Chinese economy is facing some headwinds, but it remains one of the fastest growing countries over the last decade. Here is how you can invest in its largest businesses listed here and abroad.
China is the world's second-largest economy and is home to the third-largest stock exchange. The companies listed there are some of the biggest businesses in the world including Tencent, Alibaba and BYD.
Find out how you can invest in Chinese stocks from Australia, and what challenges you might face.
Why is it hard to invest in Chinese stocks from Australia?
Most foreigners cannot directly invest in the Shanghai Stock Exchange. Unless you are a Qualified Foreign Institutional Investor (QFII), you can only invest in Chinese companies through exchange-traded funds (ETFs) or index funds. You can invest in Chinese stocks but it's not as easy as investing in other foreign markets, such as US stocks.
You will need a brokerage account that gives you access to the right stock exchanges. While it can be tricky to trade on Chinese stock exchanges directly, you'll find many Chinese-owned companies trade on Australian or US markets.
These markets are much easier to access from Australia. This guide covers either option.
How to buy Chinese stocks from Australia
There are a few ways for Australian investors to add Chinese stocks to their portfolios,
- International online brokers. Some international brokerage accounts let you purchase Chinese stocks directly from Chinese exchanges. Just a few brokers in Australia offer direct access to Chinese markets, including Tiger Brokers and Interactive Brokers. Australia's Big 4 Banks currently do not give you access to Chinese markets.
- Exchanges. For investors who don't have a brokerage account with access to Asia, numerous Chinese companies also list shares on US exchanges and the Australian Securities Exchange. Brokers offering these markets in Australia are far more numerous.
- ETFs. ETFs that track Chinese stocks are another way for Australian investors to diversify into Chinese investments, such as the iShares China Large-Cap ETF.
Types of Chinese stocks
Chinese stocks originate from companies that are headquartered in China. There are multiple Chinese stock exchanges – including the Hong Kong Stock Exchange, the Shanghai Stock Exchange and the Shenzhen Stock Exchange.
China tech stocks
Not only is China the world's largest exporter, it's also also home to impressive tech stocks names.
When it comes to investing in Chinese tech stocks, much like the Nasdaq, you'll have the choice between some large established players and some growth stocks. Some of the larger more established names include - Alibaba, Tencent, JD.com and Huawei.
China EV stocks
Another area where China is starting to establish itself is through the EV market.
It has a number of challenger brands to Tesla including Nio, Xpeng and Li Auto.
China rare earth stocks
Rare earth metals are used in a number of industrial applications including electronics, clean energy, aerospace, automotive and defence, which makes them vital to everyday life.
As it currently stands, China has roughly 60% of the world's rare earth mining and 85% of the rare earth processing. As such its rare earth shares can be advantageous for investors.
China A-shares vs China B-shares
There are 2 ways to invest in Chinese shares:
- China A-shares are the standard shares of mainland Chinese companies listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange. Historically you had to be a Chinese citizen to purchase these shares, but post 2003 they became more widely available.
- China A-shares are in the local currency, RMB, while China - B shares are quoted in foreign currencies, usually US dollars and are more widely traded by foreign investors.
You might have difficulties regardless of the option you choose if you're a foreigner. The government still has regulations over China-A shares, and you will have difficulties with exchanges for China-B shares.
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.
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
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 US$2.7 trillion in 2023, according to World Population Review.
In fact, its growth rate has been exceptional over the last decade. The country's year-over-year export growth hovered near 17% from 2002 to 2012. Fast forward to today, it is facing some challenges and is expected to grow by around 1.1% in 2022, according to the IMF.
Are Chinese stocks listed in Australia?
Over 50 Chinese stocks trade on the ASX. You can buy, sell or hold these stocks with a domestic brokerage account the same way you would any Australian stock.
Chinese-listed stocks
There are many well-established Chinese companies that don’t trade on Australian exchanges. If you hold an international brokerage account with access to Hong Kong or Mainland China exchanges, you can purchase shares directly.
Some major Chinese companies include:
- China Railway Construction (CWYCY)
- China Railway Group (CRWOF)
- CITIC Ltd (CTPCF)
- Industrial and Commercial Bank of China (IDCBY)
- Ping An Insurance (PNGAY)
Which ETFs track Chinese stocks?
Another option for Australian 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 shares, an ETF that tracks Chinese stocks offers broad exposure to a number of securities as opposed to just one.
- iShares China Large-Cap ETF
- VanEck Vectors China New Economy ETF
- VanEck Vectors FTSE China A50 ETF
- Global X MSCI China Consumer Discretionary ETF
Risks of investing in Chinese stocks
Chinese stocks present unique risks. Many Chinese companies are state-owned and ongoing tensions between China, the US and Australia could result in Chinese stocks being delisted from US and even Australian exchanges.
In 2017, there were 102 state-owned enterprises (SOEs) in the Fortune Global 500. Of those 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, such as 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 US have led to 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.
The bill is problematic for Chinese companies listed on US exchanges and could potentially result in numerous Chinese stocks delisting from US exchanges.
Bottom line
China presents a lucrative growth opportunity for investors looking to diversify into other countries.
There are numerous ways to invest in Chinese stocks from an Australian brokerage account. For those who prefer to invest in Asian markets directly, brokers such as Tiger Brokers and Interactive Brokers offer international brokerage accounts.
Before you open an account, explore available trading platforms by fees and available markets to find the broker that is best positioned to serve your investment goals.
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