Is It Worth Investing In Chinese Stocks?

Investing in the world’s second-largest economy that has a consumer base of around 1.4 billion people can help diversify your portfolio

While the United States remains the top destination for international investors, there is no harm in exploring other options. In that context, one could be thinking about investing in Chinese stocks. Let us take a look at how you can invest in Chinese stocks and is it worth the risks.

Can Indian citizens invest in Chinese stocks?

The current laws in India allow Indian residents to invest in international markets including Chinese stocks. The Reserve Bank of India (RBI) has provided the Liberalized Remittance Scheme (LRS) that can be used to invest in Chinese stocks. As per LRS, an amount of up to $250,000 per year is allowed for overseas investment options. Indian residents can invest in various options such as mutual funds, stocks and exchange-traded funds (ETFs).

How to invest in Chinese stocks?

There are multiple ways in which Indian residents can invest in Chinese stocks. For example, there are Mutual Funds or Fund of Funds (FoFs) that focus on investment in Chinese stocks. These funds also target the Greater China region that includes Hong Kong, mainland China and Taiwan). Some examples of funds that focus on Chinese stocks include Edelweiss Greater China Equity Off-shore Fund, Axis Greater China Equity Fund of Fund, Nippon India ETF Hang Seng BeES and Mirae Asset Hang Seng TECH ETF. Similarly, there are various other mutual funds or FoFs that you can consider.

You also have the option to invest directly in Chinese stocks. This can be done via an overseas trading account. You will have to open a trading account with an Indian broker that has partnership with International brokers. This way, you can access Chinese stocks listed on exchanges such as the Hong Kong Stock Exchange. Another option is to use ETFs via the US or Hong Kong markets. You can choose ETFs that focus on Chinese indices such as MSCI China Index, Hang Seng Index, etc.

Is it worth investing in Chinese stocks?

Before you invest in Chinese stocks, it will be wise to understand the benefits and risks. Starting with the positive aspects of Chinese stocks, it is common knowledge that the country leads in technology, manufacturing, electric vehicles and renewable energy. China is also known to be home to the world’s largest store of rare earth elements. It has around 36.7% of the world’s rare earth reserves. These rare earth elements will be the key to growth and prosperity in the 21st century.

Talking about risks, the regulatory framework in China may not be up to world standards. As China follows an authoritarian political system, there can be sudden changes in regulations. Such decisions may have an impact on stock prices, something that will be hard to predict. Another factor is that Chinese companies follow a different accounting system. This can bring issues related to transparency and legal risks. China is also facing the issue of declining population.

As is evident from above, Chinese stocks have both opportunities and risks. Every market has its pros and cons. For max gains and to reduce risks, you need to ensure that you choose the right Chinese stocks.

DISCLAIMER – This article is for informational purposes only and does not constitute financial advice. Always conduct your own research or consult a SEBI-registered professional before making any investment decisions. Investments are subject to market risks.