Chart of the Week: China’s Stock Markets Still Attract Investors

This article was originally published on ProsperUs. Follow me on Telegram here for regular investment insights.

Over the past few weeks, all the headlines in financial media have been dominated by the crackdown by China’s various regulators on its homegrown tech giants.

For long-term investors, though, that raises questions over whether the clampdown 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.