Mainland China Is Open to Foreign Tech and Commodity Investments
Recently Alibaba made waves by showing us just how powerful a China based company can be. However, this week, there's bigger news coming out of the country.
China, November 27, 2014 (Newswire.com) - Nov 26, 2014: Recently Alibaba made waves by showing us just how powerful a China based company can be. However, this week, there’s bigger news coming out of the country. The Hong Kong Stock Exchange has linked up with the Shanghai Stock Exchange. This link now provides foreign investors with an opportunity to own mainland China stocks; something that we haven’t seen in the country’s history.
Weren’t Foreign Investors Already Able To Buy Shares In Mainland China Stocks?
Yes, but the ability to do so was heavily limited. In the past, the only way to own mainland shares was through the purchase of ETFs. However, ETFs aren’t single shares. Instead, in order to invest in mainland stocks, an investor had to essentially make a basket investment. In essence, they were purchasing basket stocks pegged to indices rather than purchasing individual stocks in an open exchange setting. The new link between the Hong Kong and Shanghai stock exchanges now allows foreign investors to do just that.
What Stocks Are Available To Foreign Investors?
While not every stock in the mainland China stock market is going to be available, the vast majority will be; which amounts to 80% of the market or 560 stocks! This new arrangement has opened the door to the smaller, emerging companies that were never available to foreign investors in the past.
Why Are Investors Getting So Excited?
As mentioned above, if investors wanted to purchase mainland shares in the past, they had to make basket investments; essentially purchasing blocks of the larger companies in the mainland. However, most of the underlying assets for the stocks included in the ETFs were state owned banks and commodity companies with less of a drive for profits. Because the companies were large, they were relatively safe investments; however the growth wasn’t as exponential as many of the emerging companies in the market.
This new move changes that. As mentioned above, 560 stocks are now available to foreign investors; many of which are emerging technology companies. What we’re looking at is hundreds of mini-Alibabas!
How Will Investors React To The Ability To Purchase Mainland Stocks?
Most experts believe that this will lead to a flood of investments into these stocks. The reason for this belief is that mainland China is not part of most global indices. To put the new availability into perspective, if mainland stocks were to be included in the all-world index, China’s weight would go from 2% to 3.5%. That just goes to show how many profitable companies are in the mainland; companies which investors will be excited to fund!
Are Bonds Available As Well?
As a matter of fact, they are. As a matter of fact, CBON is an index that’s comprised of 1,446 bonds of 244 Chinese issuers. As a result, China is also emerging as one of the world’s bond leaders. While the United States is still in first place at $17 trillion in bonds; China is now in third place with $5 trillion!
How Do I Get My Hands On Mainland Shares?
Because of the new link between Hong Kong and Shanghai, anyone who opens a brokerage account with a firm in Hong Kong will have the ability to purchase mainland shares. American Futures Trading has been mentioned in various online publications as a great broker for the facilitation of these purchases for American investors.