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Understanding China’s A Shares
Investing into a country’s stock market that is not your own can present tremendous opportunity along with a volume of new information to become familiar with. There has been international attention placed upon the economy of China in the past few years, both for its boom and its impact on other industrial nations around the world. When investing into any country’s economy or stock market, one of the first steps is to become familiar with their systems and their structures.
One of the methods of investing into China’s stock market is that of A shares. A shares refer to companies that have been incorporated in the mainland of China. These shares are then traded on the Chinese stock markets. A shares have seen a tremendous amount of growth as international interest has skyrocketed in the past few years. Part of the reason for this was due to the slow removal of some of the restrictions placed on the A shares for foreign investment, while another reason is the steady increase of the Chinese economy.
Most companies that are listed on the Chinese investment exchanges will offer two forms of shares, A shares and B shares. While B shares are quoted in the foreign currency, A shares are not. B shares are open to foreign investors and easier to translate as they can be found in a variety of foreign currencies.
A shares are currently quoted to investors as Renminbi, with a limited current investor pool. Mainlanders and a few select institutional investors are permitted to trade China’s A shares. In some cases under a regulated structure known as the Qualified Foreign Institutional Investor System (QFII), foreign investors are permitted to purchase A shares in China.
A shares currently represent the largest class of shares available on the Chinese market today. So, A shares are not currently open to foreign investment; only institutional investors and residents are permitted to purchase A shares and invest in this manner. But, if an investor wishes to hold this type of share within their portfolio, they may be able to do so through purchasing a mutual fund or other type of professionally managed product that holds an A share.
There has been regular discussion of merging or altering the way that investment shares are sold in China so that foreign investment would be allowed in an easier manner for mainland companies. While interest continues in the Chinese economy, there is also pressure from international investors to more closely regulate both the investment practices and manufacturing practices of products from within China.
There is no doubt that the Chinese economy has been steadily rising in strength, spurring a global interest in both the products produced there and to foreign investors who wish to take advantage of the opportunity present within the rising economy. Alternatives to purchasing A shares or even B shares directly on the exchanges would include acquiring shares in domestic mutual funds offering a portion of their portfolio as Chinese companies or shares.
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