What are B-Shares
B-shares are equity share investments in companies based in China. They trade in foreign currency on two different Chinese exchanges. On the Shanghai Exchange, B-shares trade in U.S. dollars. On the Shenzhen Exchange, B-shares trade in Hong Kong dollars.
BREAKING DOWN B-Shares
B-shares were initially offered to target investment from foreign investors. They are an alternative to A-shares which are the standard equity market offering from Chinese corporations. A-shares trade in China’s local currency the renminbi.
In 2001, the China Securities Regulatory Commission began allowing investment in B-shares from local Chinese investors as well. B-shares trade alongside A-shares on the Shanghai and Shenzhen Exchanges. Investors must trade B-shares in U.S. dollars on the Shanghai Exchange and in Hong Kong dollars on the Shenzhen Exchange. While these shares trade in differing currencies, they are issued at renminbi face value.
China’s Equity Market
China’s stock market is the second largest in the world. Equity share trading in China is comparably more complex than other international markets. Along with A-shares and B-shares, companies can also issue H-shares which trade on the Hong Kong Stock Exchange. It has also become common for Chinese companies to issue public shares of their stock in the U.S. In the U.S., China’s publicly traded stock trades as N-shares.
China is one of the most advanced and sophisticated emerging market countries. Thus, investments in Chinese stocks may have high risks but they also have high potential for gains. Numerous investment funds exist for retail investors that would rather invest in diversified portfolio offerings than individual shares. Most diversified portfolio offerings are structured as a mutual fund or exchange-traded fund (ETF).
China Fund Investing
The S&P China Broad Market Index and the Shanghai Composite Index are two popular Chinese benchmarks followed by investors. The S&P China Broad Market Index is comprised of all China’s publicly traded equities available for foreign investors. This Index includes 769 constituents with market caps ranging from $493 billion to $68 billion. Investors seeking comprehensive investment in stocks from the Index may choose to invest in the SPDR S&P China ETF (GXC). GXC is a passively managed ETF that seeks to replicate the holdings and performance of the S&P China Broad Market Index.
Many other funds also exist for investors seeking exposure to China’s equity market. Funds include both A-shares and B-shares. Foreign investors cannot invest directly in China’s A-shares. However, through China’s Qualified Foreign Institutional Investor (QFII) system certain institutions can buy A-shares for retail fund offerings in the U.S. The Shanghai Composite Index is a benchmark index that holds all of the A-shares and B-shares offered from Chinese companies on the Shanghai Stock Exchange. It provides one of the most comprehensive indexes for tracking Chinese equities. (See also: The Best ETFs for the Shanghai Composite Index.)
Investing in multiple share classes from China can be complex. As a result, there are few funds that offer comprehensive market exposure to both A-shares and B-shares. The db X-trackers Harvest MSCI All China Equity ETF (CN) is one of the market’s top funds offering this diversification. CN tracks the MSCI China All Shares Index which includes A-shares, B-shares and H-shares.