Chinese Market Mayhem

Dec. 05, 2017 4:08 PM ET

Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Summary

Buy/Sell?
Mainland vs Hong Kong?
How safe?
Who's investing?
Worth it?

Being the Second Largest stock market right behind the United states stock market (for now), The Chinese Stock Market has been booming. Even with the 2015 – 2016 hiccups, the Chinese stock market has proven itself as a worthy market capable of making the average investor rich. The question one must ask him/herself before investing in the Chinese Stock Market is “Do I understand Chinese stock and how does it differ from the US Stock Market?”.

Can Foreigners buy/sell?

When looking at the Chinese Stock Market foreigners can buy and sell shares issued by Chinese companies listed in Hong Kong but have more limited access to the mainland exchanges in Shanghai and Shenzhen. This is the first of many red flags to investors and is usually more than enough to scare most away. With less than 2% of shares being foreign owned even after being open to foreigners for quite some time something doesn’t seem right.

2. Mainland China vs Hong Kong?

Among the complexities of the market one of the most confusing to foreign investors is understanding the differences in markets located in Mainland China/Hong Kong. At its most basic its clear Mainland China is communist while Hong Kong is considered to have a limited democracy. Having different currencies also makes things just a bit more difficult if it wasn’t already. Certain rules have been put into place as of 2014 called “Shanghai-Hong Kong Stock Connect” and 2016 called “Shenzhen-Hong Kong Stock Connect” that allows foreign investors to buy stock in Shanghai and Shenzhen.

3. How safe is investing?

Everyone who has ever invested knows there is risk involved but the Chinese market is quite the gamble. The Chinese market has earned a bad rep as its known for irregularities, insider trading, accounting fraud and being heavily influenced by the government. Its almost as if investors are directly betting on government policy more so than companies themselves.

4. Who’s investing?

Unlike most stock markets the Chinese stock market is dominated by individual investors. Some 61% of Chinese investors trade at least once a month, compared with 37% of investors globally, according to a 2016 study by State Street Corp. This sizable percentage of investors also leaves the market open to substantial and erratic change over a very short period of time.

5. Is it worth it?

Yes and no. With proper knowledge and time an investor could come out on top but with The Chinese government “calling the shots” things can change in the blink of an eye. Over the years the Chinese Stock market has been making changes in order to open its doors to new investors in different counties. With time the Chinese stock market will become increasing “friendly” with foreign investors but playing this stock market will always be challenging.

Sources

FAHEY, M. AND CHEMI, E.

Three charts explaining China's strange stock market

In-text: (Fahey & Chemi, 2017)

Your Bibliography: Fahey, M., & Chemi, E. (2017). Three charts explaining China's strange stock market. www.cnbc.com. Retrieved 2 December 2017, from https://www.cnbc.com/2015/07/09/three-charts-explaining-chinas-strange-stock-market.htm

WILDAU, G., CADMAN, E., YANG, Y. AND KAVANAGH, L.

20 charts that explain the Chinese economy

In-text: (Wildau, Cadman, Yang & Kavanagh, 2017)

Your Bibliography: Wildau, G., Cadman, E., Yang, Y., & Kavanagh, L. (2017). 20 charts that explain the Chinese economy. China's economy: GDP growth, interest rates and inflation statistics. Retrieved 2 December 2017, from 20 charts that explain the Chinese economy

MAXEY, D.

How Much Do You Know About China’s Stock Market?

In-text: (Maxey, 2017)

Your Bibliography: Maxey, D. (2017). How Much Do You Know About China’s Stock Market?. WSJ. Retrieved 2 December 2017, from How Much Do You Know About China's Stock Market?

PRABLEEN BAJPAI, C. (.

Hong Kong Vs. China: Understand The Differences

In-text: (Prableen Bajpai, 2017)

Your Bibliography: Prableen Bajpai, C. (2017). Hong Kong Vs. China: Understand The Differences. Investopedia. Retrieved 2 December 2017, from Hong Kong Vs. China: Understand The Differences

LORING, S.

Shanghai-HK connect: What you should know

In-text: (Loring, 2017)

Your Bibliography: Loring, S. (2017). Shanghai-HK connect: What you should know. CNBC. Retrieved 2 December 2017, from Shanghai-HK connect: What you should know

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.