I’ve been getting a lot of queries on China recently. And broadly, they can be split into 2 camps:
Should I sell my shares because of the Wuhan Virus? What shares / REITs should I be buying?
- I want to buy China shares. What is the best way to do so?
Now the first question is a tough one. There are many factors to keep track of here, and the situation changes on a daily basis. We’ve been sharing a lot of thoughts to Patron members the past few days (so do consider signing up if you’re keen). I’ll also see if I can do a roundup on that the next week or so.
But the second question, is much, much easier. What is the best way (Stock Broker) stock broker to buy China A-Shares?
Basics: How to get exposure to China? Why are A-Shares important? What are A-Shares actually?
Now the China market is very different from the US market in terms of access.
To illustrate very simply – If you wanted to invest in US companies, you’d pick a stock broker that gives you access to the US stock market (NYSE or NASDAQ), and use that to buy the stock that you want.
If you want to invest in China companies however, you’ll need a stock broker that gives you access to 3 different markets, US, Hong Kong, and China.
What’s the difference between the 3 you ask? Very simply, each stock market has a different emphasis / type of China shares, as set out below.
- US Market – mostly tech companies like Alibaba, Baidu, Weibo etc
- Hong Kong Market – Mainly China SoEs and more recently, tech companies. Shares of China companies listed in HK are called H-Shares.
- China onshore market – Mainly China SOEs and domestic China companies (eg. Moutai, Midea etc). More recently, a lot of emphasis on tech companies via the Star Board etc. Shares of China companies listed in in mainland China are called A-Shares.
And why is this such a mess? It really stems from 2 big reasons:
- Foreign investors cannot easily invest in Chinese onshore capital markets – The RMB is not a freely transferrable currency. This means that foreign investors who invest money onshore in Chinese capital markets face huge problems getting their money out. To resolve this issue, they usually resort to funky legal structuring via offshore entities, the legality of which were always a bit murky. Because of the huge hassle involved, it’s deterred all but the most persistent foreign investors. And because in the early days of China’s development, most of the capital came from foreign investors, this forced big China companies to have to go to offshore markets (Hong Kong and US) to access the foreign pool of capital. Of course, this is changing quickly today.
- Foreign investors cannot invest in China tech companies – China has a law that prohibits foreign investors from investing in industries that are deemed to be of “strategic importance”. And back in the 2000s, this included an obscure category called “Information Technology” (I know right, the irony). Because of that, these Technology companies were forced to list in either the Hong Kong or US market (via VIE entities), if they wanted to IPO to foreign investors. Because of this legacy reason, most of China’s tech behemoths today (Alibaba, Tencent, Baidu etc) are all listed outside of China.
So that’s the background reading. But if you learnt nothing from the above, you just need to know this. As a foreign investor today, if you want to invest in China, you need to pick between 3 different markets, US, Hong Kong, and China, each with their own pros and cons.
Best Brokers for US or Hong Kong Shares
We did an article last month that covers the best stock brokers for US and Hong Kong shares, so we won’t touch on it again. Check it out here if you’re keen.
Best Stock Broker to buy China A-Shares?
There aren’t that many Singapore Stock Brokers that allow access to China A-Shares (Shanghai and Shenzhen).
I compiled the fees from those that I could find below.
UOB Kay Hian / OCBC
Philips Securities (POEMS)
Minimum Commission (CNY)
It was interesting because of all those I checked, only 4 Stock Brokers provided such access: Saxo, UOB Kay Hian, OCBC, and Philips Securities (POEMS).
Among the 4 stock brokers, Saxo has the lowest fees.
Based on the above, Saxo looks to be the best broker out there to buy China A-Shares. If I’m missing out any brokers, please do leave a comment below so I can add it in!
Note: As your AUM goes up, you quality for discounted rates at Saxo, see the table below (Classic, Platinum and VIP tiers respectively).
What about custody fees?
The local brokers like UOB and OCBC charge $2 per counter per month to hold foreign stocks. That works out to $24 per counter per year.
Saxo charges a 0.12% AUM fee each year, which if you invest $20,000, works out to $24 a year.
To simplify – if you have any amount less than $20,000 in one stock, the custodian fee at Saxo is lower than that of the equivalent local broker.
In other words, you have to consider what kind of amounts you are investing.
Of course, you must also consider the trading commissions (see above) to have a comprehensive picture of which broker has the lowest fees. On a whole, it does look like Saxo has the edge up.
Financial Horse x Saxo Affiliate Link
If you’re keen on opening a Saxo account, Financial Horse has partnered with Saxo for a special account opening bonus. The link is below, drop me an email at [email protected] for the next steps!
Referral Link: FH Account Opening Bonus.
I’ve always said that there’s no need to overthink things with a stock broker. The paramount concern is to pick one that is reliable and that will not go under. And after that, just pick the one that offers the cheapest fees.
With the Coronavirus playing out so far, I’m definitely on the lookout to pick up some A-shares.
What about you guys? Will you buy A-Shares? What Stock Broker are you using? Share your comments below!
Looking for a comprehensive guide to investing? Check out the FH Complete Guide to Investing for Singapore investors.
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Maybe you can let people who signed up for your Financial course also participate in your Patreon info. After all, they have spent a lot of money already, probably more than most of what your Patreon subscribers have paid.
Yep we’ve included quite a few of the Patron articles on the course already. If you login to the course page they are all included as explanatory notes.
Is there any particular one you are keen to get access to? We can look at add that in as well.
Anyway thanks for the feedback – we’ve decided to reorganise the FH Course, so that all Wuhan related articles come under a new module 3.1 to make it easier to search and locate them. If you login now you’ll be able to see this new module, we’ll continually add more content over time.
Hope this helps. Cheers!
Indirectly. I bought lots A shares good and bad via China ETFs from HKEX using FSMone. Recently I bought 3169.HK which is Vanguard total China ETF which has A, B, H, Red chips, P chips, S Chips and N shares. Gotta catch them all.
There is also the iShares A50 etf in HKEX.
Haha any strategy that you would care to share? Why A shares vs H shares, and which ETFs that you prefer?
Maybe when there are meaningful updates to the course, you could let people who have bought the course know. Those of us who have already completed it will likely not be constantly going back to check unless we know there is new info.
There is an update email going out to all course members tonight/tomorrow. Can you let me know if you didn’t receive it? And I will check further on my end.
I bought a vanguard total China ETF (3169.HK) because I wanted to capture A H and N shares. My strategy is that I don’t know the Chinese companies well but I am bullish that China can recover, so I just buy it all. TER is 0.40.
If you just want a shares you can buy iShares core csi 300 ETF (2846.HK). TER is 0.38
There is a multi factor (smart beta) ETF that I might be interested but I haven’t bought yet: 2803.HK https://www.premia-partners.com/premia-china-bedrock-economy-etf-2803/
And 3173.HK https://etfprod.premia-partners.com/etf/3173
These are more specialize target a shares ETF that capture old and new economy that target value, quality stocks with TER of 0.50 (cheaper than our sg reit etfs)
This article below in seeking alpha talks about China ETFs but it is more geared to US ETFs which means withholding taxes for us. But there is a section where the author talks about hk listed ETFs so do check it out.
Thanks! This is helpful.
3169 looks like a really good ETF, pity the AUM and liquidity is so small.
Poems cash plus account offers good commissions
Did a check, minimum commissions are still 80 Yuan though?
Thanks for this article.
A few questions related to Chinese A-shares:
– are the brokerages you mention using hk (northbound) stock-connect? Is that the only way for (retail) foreigners to buy A-shares at the moment?
– do the commission rates you mention include stamp duty? (0.1% on sales from what I understand)
– for dual listed stocks in HK and SSE/SZSE, do you have a source to check the premium/discount between the two? Any other consideration than the premium/discount when deciding which to buy?
– I am not familiar with the currency aspect of trading A-shares; I assume you have to buy CNY (or CNH?) first, then sell the same when you close your position? Any limitations to doing that?
Those are fantastic questions! To my knowledge:
1. Yes, stock connect. That’s the only “feasible” way for now. You can also open an A-share account onshore in China, but you need a long term residence permit, tax declarations, and you’ll have lots of problems moving the RMB offshore down the road.
2. Excludes Stamp Duty
3. No source. The other big consideration is whether the premium/discount will hold up going forward. This goes back to the demand/supply imbalance between PRC and HK market, and is a longer term question of onshore markets vs HK market. I haven’t fully wrapped my head around the long term implications of this too.
4. Yes you buy CNH if its one of these brokers. No limitations because you’re using CNH via stock connect. Lets say if you had opened an A share account onshore instead, then you’ll have big problems moving the RMB out eventually. For one of these brokers, the broker handles most of the heavy lifting for you.
Hi, Just wondering if you have actually take into consideration of the foreign currency conversion rate for CNH when recommending SAXO trader.
Yes the rates for all of them are equally bad haha – so the next best thing is to go for cheap commissions. If you know a broker with good FX and commission do share.
Hi FH, thank you for the article. May i know if dividend from China market is taxable? Thank You
None that I know of actually. There is onshore tax on corporate profits, but no withholding tax as far as I remember.
Saxo has 1.5% forex charges on trades not denominated in your base currency. Low brokerage rates but FX rates are bad.
FX rates are 0.75% I believe. But to be fair, every broker charges FX fees, it’s just that some hide them better than others. I changed some USD via DBS Vickers recently and they gave me a horrible spread.
Have you considered using tiger brokers to buy China A shares?
Yup, doing an updated review this week on brokers. 🙂