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
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.
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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