Brokers that allow to buy on Shanghai stock exchange

Falc

I see many of the brokers around let people buy on various European and American stock exchanges, does anyone know any good brokers that allow its users to buy on the Shanghai stock exchange?

temagami

The short answer is effectively no, but Chinese shares are a complicated topic, so let me expand at length ...

Mainland China has two stock exchanges - Shanghai and Shenzhen. Shenzhen is more biased towards small and mid-sized companies and private firms. Both markets trade two types of shares - A shares and B shares.

A shares are the big and liquid market. Unfortunately, we can't buy them - they are restricted to Chinese citizens (ie mainlanders - not even Hong Kong and Macau residents) and a small number of foreign institutions with qualified foreign institutional investor status.

We can buy B shares, which were originally set up as a parallel market for foreigners. But that market is pretty moribund these days - there are about 100 or so companies with B shares in issue and liquidity is very low.

I've never bothered with B shares myself. According to one fund manager I spoke who has, 90% of them are terrible businesses and the remainder might be interesting, but you need a huge amount of local knowledge to sort out which is which.

Hence I wouldn't recommend it. For what it's worth, you won't find a retail broker who will trade B shares in the UK as far as I know, though there are plenty in Singapore and Hong Kong who will trade both Shanghai and Shenzhen B shares.

Most foreign individuals buying Chinese companies do so through Hong Kong-listed firms. One of the reasons the B share market idea has gone flat is because most firms that wanted to attract international investors just listed in Hong Kong anyway.

There are also a handful of interesting firms listed in Singapore and obviously a lot of companies with substantial mainland China interests in Taiwan. There are also plenty of Chinese firms listed in the US, which as the recent spate of scandals has demonstrated are in many cases of very poor quality and many are outright frauds.

So if you're looking to invest directly in China-related stocks, you want a firm that will let you buy Hong Kong stocks and perhaps Singapore (Taiwan is more awkward - you'll need a broker in Asia to make it cost-effective). For UK-registered online brokers, that's basically TD Waterhouse, Saxobank and Interactive Brokers (the latter doesn't do Singapore oddly, which is the biggest gap in its service - it is very good on many other points through).

Can't link since I haven't been here long enough to have linking rights, but in my profile there's a link to my website which has some comparison tables for international stock brokers (I write about this topic professionally and I put it up there as an investor resource since it is very hard to find guides to international investing online).

Falc

I see, thanks

Reaper

This is a case where a fund makes things a whole lot easier. I use the First State Greater China Growth which invests through Hong Kong and in Taiwan, or Fidelity have one run by the famous Anthony Bolton, though it has not done as well to date.