International investing is a common component in almost any investment asset allocation, no matter what the risk tolerance is of an investor. International investing can provide both a form of portfolio diversification as well as an opportunity for investment returns. The addition and cultivation of international investment products has also made it easier for investors to add an international component to their personal portfolios.
Investors can consider international mutual funds, American Depository Receipts, index funds and in some exceptional cases direct investments into the Chinese markets to add an international component to their personal portfolios. Just as with any asset investment class, it is important for the investor to understand the importance and mechanism behind international investing.
The Chinese Investment Regulatory Bodies
Virtually every international and domestic exchange has a regulatory body to oversee trading. In China, the shares that are traded on the Hong Kong Exchange are regulated by the Hong Kong Exchange and the Futures Commission. Regulatory bodies are designed to protect investors and to ensure an orderly trading market. Also, these regulatory bodies often govern how securities are listed, modified and removed from the nation’s exchanges.
A Shares and B Shares
Most companies that are listed on the Chinese markets will offer both A shares and B shares to investors. A shares re are offered in the home country’s currency and limited to residents of the mainland. B shares, offered on the Shanghai and Shenzhen stock exchanges, refer to those that are traded in foreign currencies and are open to foreign investing. The face values of B shares are set in Renminbi. In Shanghai B shares are traded in US dollars, whereas in Shenzhen they are traded in Hong Kong dollars.
Other Investment Options
For some investors, they may find it a more attractive and a simpler option to purchase domestic mutual funds that have Chinese exposure. The international asset class is an important component to most investment portfolios. But, most professionals will suggest that within the international asset class, the investor diversify each country's exposure. For example, if a portfolio is supposed to have 20% within the international category, that 20% should be broken up among various countries individually or within mutual funds that have expertly managed exposure in multiple global markets.
U.S.- Listed Chinese Companies
In some cases, Chinese companies can be listed on the US exchanges. In order for a Chinese company to be listed on the New York Stock Exchange, it must follow the US guidelines. This offering gives investors the opportunity to invest in the Chinese markets in a system that is regulated by the US government.
Overall, China is an attractive country to invest in, providing investors the opportunity to take advantage of the booming economy through direct investment in ADRs into mainland shares or indirect investments into domestic mutual funds. As with any investment of class, it is important to understand what the best allocation is for the investor's risk tolerance. Also, it is advised to compare multiple investment options within the asset class so that the investor can make the best investment choice possible.
Read More Articles About International Investments:
- International Investing Using ETFs
- International Investing Using Mutual Funds
- Understanding the Hang Seng Index
- China's Banking System