Chinese Stock Market - How to Invest in Chinese Stocks
Did you know that after the initial coronavirus pandemic of 2020 the mainland Chinese stock market recorded 18.02 million new investors? That means more than 170 million investors were involved in helping Chinese stocks surge to record highs!
China’s sheer size and increasing influence around the world means that investing in Chinese stocks is the way for investors looking to capitalise on the country’s investing boom and economic growth.
Read on to find out more! ▼▼▼
In this article, you will learn:
✅ What the Chinese stock market and how it is constructed via the two mainland exchanges: the Shanghai Stock Exchange and the Shenzhen Stock Exchange.
✅ Why the Chinese stock market has attracted record interest, helping it to surge to new all-time highs after the coronavirus pandemic of 2020.
✅ What the most popular Chinese tech stocks are and how to trade the likes of Alibaba, Baidu, NIO and more!
✅ How to start investing in Chinese stocks and the different options available to investors using stock market indices, ADRs (American Depositary Receipt) and Exchange Traded Funds (ETFs).
✅ How to open a Trade.MT5 account to trade stock sectors via Contracts for Difference (CFDs) allowing you to potentially profit from both rising AND falling stock market sectors.
✅ Why the Technical Insight Lookup indicator, available in the FREE and exclusive MetaTrader upgrade to the Admiral Markets Supreme Edition, can help in your trading and investing decision by providing you with real-time actionable ideas!
✅ How to open a FREE demo trading and investing account so you can test all of the services from Admiral Markets UK Ltd in a virtual environment until you are ready to go live!
✅ And much, much more!
What is the Chinese stock market?
In mainland China, there are two stock exchanges called the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A stock exchange is a place where people such as traders, investors, stockbrokers and others can trade in shares of publicly listed companies. The market capitalization of all the stocks listed on China’s stock exchanges has surged in recent years and now both sit in the world’s top eight, as shown below:
Source: Statista, 21 January 2021
The above image shows the largest stock exchanges around the world by the market capitalization of all its listed companies as of March 2020. It shows the New York Stock Exchange as the world’s largest stock exchange operator with a stock market capitalization of more than 25 trillion US dollars.
The Shanghai Stock Exchange is the fourth largest in the world with the Shenzhen Stock Exchange the seventh largest in the world. However, it is also worth noting that many Chinese stocks, especially Chinese tech stocks, are also listed on other global exchanges.
For example, many Chinese companies choose to list on the Hong Kong Stock Exchange which is the fifth largest in the world as it is easier for investors to access this stock market than China’s mainland stock market. Many Chinese tech stocks have also chosen to list in the United States via the American Depositary Receipt (ADR).
▶️ An ADR is a certificate issued by a US depository bank that represents a specified number of shares of a foreign company's stock.
Did you know that you can view real-time stock prices of more than 3,000+ stocks and ETFs (Exchange Traded Funds) from around the world by downloading the MetaTrader 5 trading platform provided by Admiral Markets for FREE?
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Why invest in the Chinese stock market?
At the beginning of 2021, China had the second biggest economy in the world. However, according to the Centre for Economics and Business Research, China’s economy will surpass the United States by 2028. The numbers also back up this claim.
In the year 2000, China’s share of global gross domestic product (GDP) was just 3.6%. This figure surged to 17.8% in 2019 with many analysts predicting even more growth in the future. In fact, one year on from the coronavirus pandemic the International Monetary Fund (IMF) forecasted that the Chinese economy will grow 8.2% in 2021, triggering a huge shift in the emerging market dominance over the next few decades.
Source: PWC, 21 January 2021
This is a stark contrast to many other economies who suffered large economic contractions after the coronavirus pandemic of 2020. The Chinese economy started its recovery much sooner than the rest of the world with domestic retail sales, foreign investment and social mobility all increasing. This helped the Chinese stock market surge to record highs, as shown below:
Source: Admiral Markets MetaTrader 5, #China50_F1, Monthly - Data range: from 1 Feb 2013 to 21 Jan 2021, accessed on 21 Jan 2021 at 13:30 GMT. Please note: Past performance is not a reliable indicator of future results.
The above chart shows the historical price activity from 2013 to 2021 of the China A50 stock market index, also known as the FTSE China A50 Index. This particular stock market index shows the value of companies that are listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange and includes companies such as PetroChina and the Bank of China.
There are a variety of ways investors can gain exposure to the Chinese stock market, as we discuss in the next section. One way is through a stock market index. As the China A50 stock market index represents the overall value of Chinese stocks listed on the two mainland exchanges it provides investors with the ability to capitalise on the big picture. With Admiral Markets you can trade the China A50 Index Futures instrument via Contracts for Difference (CFDs).
By opening a Trade.MT5 trading account, users can trade CFDs on a wide variety of different asset classes such as stocks, indices, commodities and currencies. CFDs allow users to trade long and short, thereby potentially profiting from rising and falling markets. This product also allows traders to trade on margin which means you can control a larger position with a smaller deposit.
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How to start investing in Chinese stocks
Gaining direct access to the two mainland Chinese stock markets can be tricky for investors. However, there are still a variety of ways investors from all around the world can capitalise on the growth of the Chinese stock market. This includes through stock market indices, exchange traded funds and individual ADR stocks. Let’s discuss each of these in a bit more detail.
Trading the Chinese stock market via index futures
As discussed in the previous section users can trade stock market indices such as the China A50 Index Futures CFD directly from the Admiral Markets MetaTrader 5 trading platform. With CFDs, traders can take both long and short views of the stock market and many other asset classes.
To start trading or investing, follow the five steps below:
#1. Open your FREE MetaTrader 5 trading platform provided by Admiral Markets or start your free download here.
#2. In the platform, select View from the top menu to open the Market Watch window.
#3. In the Market Watch window, right-click and then select Symbols. You can now search for individual markets covering a variety of asset classes. Type in the market you are wishing to trade on, or simply type in the sector and a list of different instruments will be provided.
#4. For example, by typing in ‘China’ we can see there are a variety of instruments available to trade on that have this word in its name. This includes individual stocks via ADRs and ETFs (both discussed in more detail in the next section) as well as index futures like the China A50 index, as shown below:
#5. Once you have selected your instrument, press OK. This will now be added in your Market Watch window where you can drag the symbol onto the chart to view a live price chart. To open a trading ticket, right-click on the chart and select Trading and then New Order. A trading ticket will open up for you to input your own entry, stop loss and take profit levels as well as your position size.
A screenshot showing the MetaTrader 5 trading platform provided by Admiral Markets with a trading ticket open on the chart.
You can learn more about how to trade the stock market in this 48-minute video on ‘How to Invest in Stocks.’ Created and presented by a professional trader, this video will go through what the stock market is and some strategies that are available to use. Be sure to tune in!
Investing in Chinese stocks via exchange traded funds (ETFs)
An ETF is an investment fund that tracks the performance of a specific market such as an index, commodity or stock sector. They allow investors to access sectors of the stock or regions that they would otherwise not be able to access. For example, there are ETFs that track securities in the Robotics and Artificial Intelligence sectors. You can learn more in the ‘11 Sectors of the Stock Market You Need To Know’ article.
From the Admiral Markets Contract Specification page you can view all of the ETFs available to trade and invest in via the MetaTrader 5 trading platform. For example, the image below shows a search for ‘China,’ which provides information on all the ETFs related to China:
Source: Admiral Markets Contract Specification, 21 January 2021
In the list above there is the iShares China Large-Cap ETF, the SPDR S&P China ETF, the Xtrackers Harvest CSI 300 China A-Shares ETF and many others. These are available to trade and invest in via the MetaTrader 5 trading platform where you can also view real-time prices of each of these ETFs.
Investing in Chinese stocks via American Depositary Receipts (ADRs)
American Depositary Receipts (ADRs) are a popular way for investors to trade shares of foreign companies. As many investors outside of China would find it difficult to invest directly with the Shanghai Stock Exchange or Shenzhen Stock Exchange, ADRs have grown in popularity.
In the United States, an ADR is issued by a US financial institution and then traded on a US stock exchange, like the New York Stock Exchange. Essentially, the ADR is a certificate that represents a certain number of shares in a company. Typically, the financial institution would buy a large number of shares in a foreign company and then reissue them on the stock exchange.
It is a great way for non-US companies to raise capital from more investors, especially as the New York Stock Exchange is the largest in the world. Many different Chinese companies have opted to list on American exchanges via ADRs.
With Admiral Markets you can trade on more than 100 Chinese ADRs, some of which include:
▶️ Alibaba Inc
▶️ NIO Inc
▶️ Baidu Inc
▶️ JD.com Inc
A full list of Chinese ADRs can be found on the Admiral Markets Contract Specification page and from the MetaTrader 5 trading platform provided by Admiral Markets. Chinese tech stocks tend to garner the most amount of attention from the media due to the exponential growth in some of them in recent years and the fact that they are highly politicised.
Under Donald Trump’s presidency, the administration took a hard-line stance on many Chinese companies listed on US exchanges, while also putting up trade tariffs. In Joe Biden’s inauguration, he didn’t specifically mention his approach to the dominance of China but many believe it won’t change much.
This has caused some analysts to forecast a challenging time for Chinese stocks. However, some point to the fact that the domestic growth in China is surging higher which is creating most of the value in Chinese stocks. Let’s take a look at some of the most popular Chinese tech stocks.
Investing in Chinese tech stocks
While Chinese tech stocks surged higher during the coronavirus pandemic, they fell just as fast when China announced new antitrust rules to rein in big technology companies like Alibaba.
However, most analysts are bullish on China’s growth story and any transitions that cause weakness could represent interesting opportunities for the long-term investor. Below is an overview of just some of the most popular Chinese tech stocks.
✴️ #1 Alibaba (BABA)
Alibaba was founded by Jack Ma in 1999 and has since grown to become one of the largest e-commerce companies in the world. In 2018, it became only the second Asian company to be worth more than $500 billion and boasts a workforce of more than 117,000 people.
The company is known as the Amazon of China due to similarities in its business but mainly due to the exponential growth the company has made. Alibaba’s e-commerce website helps connect Chinese exporters with companies all over the world. Within the Alibaba Group, they also have an online payment system called AliPay, while also offering solutions in cloud computing, logistical operations among others.
Source: Admiral Markets MetaTrader 5, #BABA, Monthly - Data range: from 1 Mar 2016 to 21 Jan 2021, accessed on 21 Jan 2021 at 14:30 GMT. Please note: Past performance is not a reliable indicator of future results. Last five-year performance: 2020 = +9.73%, 2019 = +54.74%, 2018 = -20.51%, 2017 = +96.37%, 2016 = +8.05%, 2015 = -21.81%.
The chart above shows the long-term, monthly price activity for Alibaba Inc. ADR. It’s clear to see the overall uptrend which also shows a high degree of volatility. The 20-period (blue) and 50-period (red) exponential moving averages are also both moving higher confirming the uptrend. Historically, buyers have used these moving average levels to initiate new long positions and will be closely watched in the new era for Chinese companies.
You can stay up-to-date with all the latest market analysis and global themes affecting the financial markets by registering for your FREE place in the Admiral Markets Trading Spotlight live webinar series.
This takes place, live, three times a week and is hosted by three different traders where you can learn more about how to trade the market, where the opportunities are and the biggest factors affecting them.
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✴️ #2 NIO (NIO.US)
NIO is a Chinese electric vehicle maker that rivals Tesla. Headquartered in Shanghai, with more than 4,000 global employees, the company only founded in 2014 recorded revenue of more than $660 million in 2020 - a 146% increase from the same time in the previous year.
In 2018, the company filed for an initial public offering (IPO) on the New York Stock Exchange which is when it first became available to trade and invest in via the ADR. For the first few years, the stock struggled to gain traction before surging higher during the coronavirus pandemic in 2020, as the chart below shows:
Source: Admiral Markets MetaTrader 5, #NIO.US, Weekly - Data range: from 9 Sep 2018 to 21 Jan 2021, accessed on 21 Jan 2021 at 15:30 GMT. Please note: Past performance is not a reliable indicator of future results. Five-year data not available.
Did you know that you can find actionable trading and investing ideas automatically, in real-time and on a variety of asset classes using the Technical Insight Lookup Indicator? This comes FREE when upgrading your MetaTrader 5 trading platform to the Admiral Markets Supreme Edition.
For example, the image below shows a search for ‘NIO Inc’ in the indicator which provides actionable technical events for the short-term, intermediate-term and long-term:
A screenshot showing an example of searching for ‘NIO Inc’ in the Technical Insight Lookup indicator from the MetaTrader 5 Supreme Edition platform provided by Admiral Markets.
This type of indicator can be extremely useful in providing an additional edge in the market when it comes to trading and investing decisions. By combining these technical events with additional research using fundamentals, investors can identify high quality opportunities in a much more efficient manner.
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Why invest in the Chinese stock market with Admiral Markets?
✔️ Invest and trade with a well-established company authorised and regulated by the UK Financial Conduct Authority (FCA).
✔️ Access the world’s most popular online trading platform MetaTrader for PC, Mac, Web, Android and iOS operating systems, provided for FREE by Admiral Markets.
✔️ Supercharge your MetaTrader 5 trading platform completely FREE by upgrading to the Supreme Edition platform to access the Technical Insight Lookup indicator.
✔️ Open a Trade.MT5 trading account to trade via CFDs to potentially profit from rising and falling markets.
Did you know that you can test all of the services and features provided by Admiral Markets by opening a FREE demo trading account?
This means you can buy and sell in a virtual environment until you are ready to go live!
Click on the banner below to open your demo trading account today! ▼▼▼
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.