Chinese companies present a potentially huge opportunity for investors, but the market in China carries unique risks and challenges that bear consideration. Here is how to invest in shares of Chinese companies and exchange-traded funds (ETFs) available for trading in the U.S.
Buying individual companies
Image source: Getty Images.
Investing in China can be a real trick as companies there carry various share classes that may or may not be accessible to the average investor outside China. For example, A shares are shares of a Chinese company that are only available to investors in mainland China. H shares, on the other hand, are shares of those companies that trade in Hong Kong and are available to anyone -- assuming your broker allows you to trade on the Hong Kong exchange.
The easiest way to invest in Chinese companies, though, is to buy shares that list on an exchange here in the United States. Here is a list of the largest Chinese companies available with market capitalizations over $10 billion:
|
Company |
Market Cap |
TTM Price-to-Earnings |
What the Company Does |
|---|---|---|---|
|
Alibaba |
$389 billion |
61.5 |
China's largest e-commerce network |
|
PetroChina |
$205 billion |
29.9 |
An integrated oil and energy company |
|
China Life Insurance |
$106 billion |
29.9 |
A life, health, and accident insurance company operating in mainland China |
|
China Petroleum & Chemical |
$94 billion |
11.0 |
An integrated oil and energy company |
|
Baidu |
$77 billion |
48.9 |
China's largest internet search engine |
|
JD.com |
$61 billion |
(154.1) |
A leading Chinese e-commerce platform |
|
NetEase |
$41 billion |
21.3 |
A leading online multimedia and services provider |
|
China Telecom |
$36 billion |
19.1 |
Wireline and mobile telecom services provider |
|
Ctrip.com |
$27 billion |
760.6 |
Travel and accommodation booking website |
|
|
$19 billion |
130.5 |
A Chinese social network and video gaming platform |
|
Huaneng Power |
$12 billion |
15.0 |
A leading utility company |
|
Yum China Holdings |
$14 billion |
27.2 |
KFC, Pizza Hut, and Taco Bell in China and the largest restaurant chain |
|
New Oriental Education & Technology |
$13 billion |
49.6 |
A private education services provider |
|
China Eastern Airlines |
$13 billion |
11.0 |
Airline and transportation services |
|
Aluminum Corporation of China |
$12 billion |
98.2 |
Chinese manufacturer of aluminum products |
|
China Southern Airlines |
$11 billion |
12.7 |
Airline and transportation services |
|
ZTO Express |
$10 billion |
29.9 |
Delivery and logistics provider in China |
Data sources: Yahoo! Finance. TTM = trailing 12 months.
In addition, some companies, such as China's largest social network owner, Tencent Holdings, are available on over-the-counter markets. In all, some 300 Chinese companies can be traded in some way stateside. The work in filtering through those can be difficult, but an easier option also exists.
Chinese stock ETFs
There are dozens of Chinese ETFs that have popped up over the years, covering everything from debt to specific industries operating in mainland China. If you're looking for broad exposure to the Chinese stock market, though, here is the list you should start with:
|
Fund |
Fund Total Net Assets |
Expense Ratio |
Fund Composition |
|---|---|---|---|
|
iShares MSCI China ETF (MCHI -0.62%) |
$2.58 billion |
0.61% |
The fund holds shares of Chinese companies that are available to all international investors. |
|
PowerShares Golden Dragon China ETF (PGJ -0.16%) |
$186 million |
0.70% |
The fund is composed of Chinese companies whose shares are listed on a U.S. exchange. |
|
DB X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR 0.75%) |
$487 million |
0.65% |
The fund holds A shares of the largest 300 Chinese companies that only trade on a Chinese exchange. |
Data sources: iShares, PowerShares, and Deutsche Bank.
Takeaways for investors
When investing in Chinese stock ETFs, investors have three basic choices: stocks listed on Chinese stock exchanges, international investor shares, and companies specifically listed on U.S. exchanges. The DB X-Trackers fund, which holds Chinese exchange-listed companies, has had the wildest performance due to the bubble-and-bust China market of 2015. Because of the extra risk involved, owning shares in China's fast-developing and changing mainland economy may not be the best route to take for the faint of heart.
Data by YCharts.
Of the two funds that own shares of companies listed outside of the Chinese stock exchanges -- iShares MSCI China ETF and PowerShares Golden Dragon China ETF -- PowerShares Golden Dragon and the companies it owns listed in the U.S. have fared better. Some, but not all, of that has to do with the extra risk with fluctuating foreign currency exchange rates. Listing on major U.S. exchanges has also helped moderate the roller-coaster movements that investing in an emerging economy can present.
For investors who want to bet on the future of the Chinese economy, there are plenty of options. There are more individual companies than ever available for trading for those of you who don't mind the homework, and a myriad of ETFs can help you get broad exposure to the whole market. Whichever option you go with, be prepared for a roller-coaster ride as China's economy continues to modernize.
