It's rare for an economy to grow as fast as China's has since the 1980s when it first began to build a unique hybrid state that allows a free market economy to operate within a communist system. It is now the world's second-largest economy, after that of the United States. And although its projected growth for 2022 has slowed to a mere 5.6%, China is still very much on the radar of investors around the world.
Those who want to follow the Chinese stock market and economy can track any of a number of indexes from stock markets in Shanghai, Beijing, Hong Kong. Shenzhen, and Taiwan. They can find useful information about the state of the Chinese economy from the Organization for Economic Cooperation and Development (OECD). Or, they can check the numbers released by China's National Bureau of Statistics (NBS), though some say those numbers are highly suspect.
Note that 2021 was not a good year for Chinese stocks, and early 2022 is looking rocky as well. A wave of regulatory reforms has sent shock waves through China's businesses and reverberated through its stock listings, both in China and in markets abroad.
- Investors who want to follow the Chinese stock market and economy can track the indexes of stock markets based in Hong Kong, Shanghai, Shenzhen, and Taiwan.
- Analysts also check figures released periodically by China's National Bureau of Statistics and the international Organization for Economic Cooperation and Development for a glimpse of the overall state of the Chinese economy.
- Investors can buy Hong Kong stocks, called H-shares, through some U.S. brokerages. Mainland stocks, called A-shares, have only recently become available to investors outside China.
- U.S. buyers can also invest in China through American Depository Receipts (ADRs) traded on U.S. exchanges and through exchange-traded funds (ETFs) and mutual funds that focus on Chinese stocks.
The Hang Seng Index fell 15.22% in the year ending Jan. 22, 2022.
The Shanghai Composite Index fell 2.33% in the same period.
Hang Seng Index (HSI)
The Hang Seng Index (HSI) is the benchmark stock market index for the Hong Kong financial world and is widely followed as a proxy for the Asian markets in general.
It is a weighted index of the largest companies that trade on the Hong Kong Exchange, covering approximately 65% of its total market capitalization.
This index is thus a benchmark for blue-chip stocks, and reflects the performance of the leaders of the Hong Kong exchange. It has four sub-sector indexes: HSI Finance, HSI Commerce & Industry, HSI Utilities, and HSI Properties.
The Hang Seng Index was created in 1969. It is published by a wholly-owned subsidiary of Hang Seng Bank.
Shanghai Stock Exchange Composite Index (SSE)
The Shanghai Stock Exchange (SSE) Composite Index, often called the SSI Index, tracks all stocks traded on the Shanghai Stock Exchange. It is a weighted index calculated from a base period of 100.
Launched on July 15, 1991, the index has a reputation for volatility, but its performance, like China's growth, has calmed in recent years. From its inception on Oct. 13, 1995, to Jan. 21, 2022, the SSI Index was up 401%. For the five years previous to that date, it was up only 12.19%.
Shanghai Shenzhen CSI 300 Index (CSI300)
The Shanghai Shenzhen CSI 300 Index is designed to replicate the performance of the top 300 stocks traded in the Shanghai and Shenzhen stock exchanges and is weighted for market capitalization, As such, it is seen as a blue-chip index for mainland Chinese stocks.
The CSI 300 is considered the blue-chip index for mainland China stock exchanges, as it tracks both the Shanghai and the Shenzhen markets.
Introduced in 2005, the index is managed by China Securities Index Co., Ltd., which maintains 5,000 indexes in 16 nations.
SZSE Composite Index
The Shenzhen Exchange is one of three stock exchanges operating in mainland China, the others being in Beijing and Shanghai. The SZSE Composite Index is the main market index of the Shenzhen Stock Exchange.
It may be less well known outside China than the others, but Shenzhen is the eighth-largest stock market in the world by market capitalization. Its listings are dominated by the stocks of companies that are controlled by the government.
Taiwan Capitalization Weighted Stock Index
The Taiwan Capitalization Weighted Stock Index is an indicator comprised of stocks traded on the Taiwan Stock Exchange (TWSE), weighted for market capitalization.
The index covers all of the listed stocks excluding preferred stocks, full-delivery stocks, and newly listed stocks. The highest weighted stocks naturally have the most significant effect on the reading of the entire index.
This index was first published in 1967.
National Bureau of Statistics of China
Analysts attempting to track China’s economy routinely study figures released by China's National Bureau of Statistics (NBS).
The NBS is responsible for the collection, investigation, research, and publication of statistics about China's economy. The NBS measures gross domestic product (GDP) through three sectors: agriculture, construction, and manufacturing, and services.
It may be wise to take these numbers with a grain of salt. The Diplomat, a current affairs magazine for the Asia-Pacific region, states flatly that the Chinese government's GDP numbers are inflated (and its COVID-19 numbers may well be, too).
All of the statistics compiled by the bureau are published on its website, including monthly, quarterly, and annual data.
The Organisation for Economic Co-operation and Development (OECD)
The Organisation for Economic Co-operation and Development (OECD) is an international non-profit group that provides a monthly Composite Leading Indicator (CLI) for China’s economy, designed to provide indications about the nation's economic growth.
The OECD also publishes data specific to China on a wide range of topics including agriculture, development, economy, education, energy, environment, finance, government, health, innovation and technology, jobs, and society.
The ADR for Alibaba (BABA) declined in value by 52.35% in the year ending Jan. 22. 2022.
Evaluation of China's Stock Market
It is crucial to note that China's stock markets do not operate in a vacuum. They operate in China. and the Chinese government's relationships with its own businesses and with the United States are subject to change.
The Chinese government is waging a regulatory crackdown on its own companies, and particularly on its internet companies. These include anti-monopoly measures that could affect the growth of companies like Alibaba as well as data privacy measures that could crush the growth of all of its internet companies. The privacy measures are aimed at preventing personal data from being transferred abroad.
China's regulatory changes erased more than $1 trillion worldwide from the value of Chinese companies, according to a report from CNN in late 2021.
What Is the Main Chinese Stock Index?
The most widely quoted indexes in American financial media are probably the Hang Seng Index (HSI), which tracks the Hong Kong Stock Market, and the CSI 300 Index (CSI300), which tracks 300 blue-chip stocks based in mainland China.
Can I Invest in the Chinese Stock Market?
There are at least four ways an American can invest in Chinese stocks:
- Buy American Depository Receipts (ADRs). An ADR is a negotiable certificate that represents a share or a number of shares in a foreign company. The Chinese retail giant Alibaba (BABA) trades in the U.S. as an ADR, sponsored by Citibank.
- Invest in an exchange-traded fund (ETF) that focuses on Chinese stocks. There are many to choose from, such as Franklin FTSE China ETF (FLCH), SPDR S&P China ETF (GXC), and Invesco Golden Dragon China ETF (PGJ).
- Use an online or real-world brokerage firm that offers access to stocks listed in mainland China and Hong Kong. Hong Kong-listed stocks, known as H-shares, are more readily accessible to international investors. Charles Schwab and Fidelity are among the brokers that offer them. The Chinese government kept a close grip on mainland China stocks, called A-shares, until recently, but they are now available through the Hong Kong exchange.
- Invest in a mutual fund that invests in Chinese stocks. Like ETFs, there are many of these, including Goldman Sachs China Equity Fund (GSAGX), Eaton Vance Greater China Growth Fund (EVGCX), and AMG Veritas China Fund (MMCFX).
Can Chinese Citizens Buy U.S. Stocks?
This is getting difficult. A new data privacy law implemented by China in 2021 regulates the export of private data from China to any other country. Its restrictions are making it difficult for Chinese online brokers (and many other Chinese businesses) to do business with foreigners.
The Bottom Line
China's breakneck growth has slowed in recent years, but it is still impressive. Its real GDP growth in 2022 is forecast by the International Monetary Fund to be 5.6% in 2022, compared to 5.2% in the U.S.
Still, the notion of investing directly in Chinese stocks has its detractors as well as its enthusiasts among American investors.
In an interview with Yahoo! Finance in early 2022, bond investor Jeffrey Gundlach said he considered China to be "uninvestable" in its current political climate. "I don't trust the data. I don't trust the relationship between the United States and China anymore. I think that investments in China could be confiscated."
Note also that the Chinese stock markets performed poorly in 2021. The CSI 300 Index fell about 5% over the year. In the U.S., Alibaba stock fell from about $232 at the beginning of 2021 to about $122 at the end of the year.
All of the above is enough to give any investor second thoughts about dabbling in the Chinese stock market, but it may not be enough to dissuade them from a more indirect approach, such as investing in an ETF or mutual fund that tracks China's business successes.