While you can argue about whether China’s long-term economic picture is setting itself up for a stumble or not, the next 10-15 years should be pretty rosy for the Chinese economy. It’s still experiencing enviable GDP growth, rising industrial gains, expanding infrastructure and an expanding middle class which loves to shop — all hallmarks of a great emerging market investment.
That’s all well and good, except by going with these conventional methods, investors are leaving the bulk of China on the table — to the tune of $4 trillion in market cap. That’s because, the majority of China’s equity market has been off-limits to international investors since the 1980s.
The new db X-trackers Harvest China ETF (ASHR) allows investors to bet directly on the A-shares listed on China’s Shanghai and Shenzhen stock exchanges. That’s an unprecedented feat for a U.S.-listed fund and could be the best way to ultimately play China’s continued growth.
Chinese Shares In A Nut Shell
For many investors looking towards international investing, the process is pretty straightforward. For example, French companies are traded on the Euronext Paris or — like energy firm Total (TOT) — trade as ADRs in North America. It’s pretty easy to gain access to both share classes, either through funds or directly. At this point, anyone with a brokerage account can access France’s stock markets with ease.
However, gaining access to Chinese firms isn’t so easy, and is actually an alphabet soup of share classes and stock exchanges.
The most encountered share classes of Chinese firms for U.S. investors are B-Shares, H-shares, Red chips and N-shares. These classes are related to where they are incorporated — on the mainland or in Hong Kong — and in what currency they are traded — U.S. or Hong Kong Dollars. Where the security is listed also plays a roll.
For example, B-shares are Chinese companies incorporated on the mainland and traded in Shanghai and quoted in USD, while N-shares are Chinese stocks incorporated outside the mainland and are U.S.-listed on the NYSE or NASDAQ. China Mobile Limited (CHL) is a prime example of a Chinese N-share.