For long-term investors, though, that raises questions over whether that is putting off individuals buying Chinese stocks at all.
The answer seems to be a resounding “no” so far in 2021. At least that’s the case with China’s onshore A-shares (Mainland China-listed stocks that were previously only available to Chinese investors).
Too big to ignore
China’s A-shares have progressively opened themselves up to international investors, though.
This has been achieved through the “Hong Kong Stock Connect”, which links various stock exchanges such as Shanghai and Shenzhen, with the former British colony’s own stock market.
China’s onshore stock markets are massive. It’s probably not a well-known fact but China A-shares (including the Shanghai and Shenzhen stock markets) had a total market cap of over US$12.2 trillion at the end of last year.
That made it the second-biggest stock market globally behind only the US – which was still some way ahead at US$45 trillion in 2020.
Yet it was around double that the stock markets of Tokyo (US$6.7 trillion) and Hong Kong (US$6 trillion).
Looking East for Chinese growth
Having launched in 2014, the Stock Connect allows international investors to purchase China A-shares through Hong Kong.
Unsurprisingly, that has attracted lots of investor money as opportunities are identified in China’s vast domestic market, from consumer discretionary to advanced manufacturing.
According to the Financial Times, based on its own calculations, offshore investors have bought a net US$35.3 billion in Chinese stocks so far in 2021 via the Stock Connect (see below).
As readers can see, inflows into the Chinese stock market have taken off in recent years. It’s also perhaps indicative of a realisation among investors that US stock listings for Chinese companies will now be a thing of the past.
In future, it looks increasingly likely that the best way for investors (both institutional and retail) to access China’s growth will come from buying companies listed on the Shanghai, Shenzhen and Hong Kong stock markets.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.