Chinese Stock Exchanges

The biggest Chinese stock exchange is the Shanghai Stock Exchange (SSE) as measured by market capitalization. The SSE has grown rapidly over the past decade and has introduced new rules allowing shares of foreign companies to become listed.

The Shanghai Stock Exchange is the world’s 5th largest stock market by market capitalization at US $2.7 trillion as of Dec 2010.

The current exchange was re-established on November 26, 1990 and was in operation on December 19 of the same year.

The first stock exchange in China was opened in 1891 in Shanghai in response to the mining boom there. The Shanghai Stock Exchange had become the center of Far East commerce before closing at the beginning of WWII.

Foreign investors can buy only certain shares on the Shanghai index. The Chinese government strictly controls how investment capital flows in and out of China. There are two classes of shares available. Class A shares are for domestic buyers only. Class B shares are for foreign investors.

Shanghai A stocks are traded in Renminbi – the Chinese currency – while Shanghai B stocks are traded in U.S. Dollars

Some large foreign institutions and big individual investors have been granted permission to trade A shares by the Chinese regulatory authorities.

Prices differentials between A and B shares of the same stock are significant.

This is just one of the many differences, as compared to American and European stock markets, that need to be understood by prospective investors if they want to participate in China’s record setting economic expansion.

The Hong Kong stock exchange is the second largest in China. The Hong Kong stock exchange shares are all traded in Hong Kong Dollars, which is pegged to the US dollar.

Hong Kong’s international exposure (Hong Kong was British controlled before 2000) to western funding, more established financial and legal systems has attracted many Chinese companies to make their IPO (Initial Public Offering) on the Hong Kong Stock Exchange, including many Chinese government linked corporations such as PetroChina, Bank of China, and China Mobile, China Shenhua.

The Chinese government is slowly opening up channels through which foreigners can invest indirectly in the A shares of stocks.

With the new Accounting Principles, company asset values are assessed in the current market value dollars.

China is the 2nd largest economy in the world, and rapidly gaining on the U.S. Among other statistics, it’s the world’s largest importer of copper, steel, cotton, and soybeans, and the world’s largest exporter of goods to say nothing of being the world’s largest owner of U.S. debt.

The fact is that Chinese stocks have been reporting some excellent operating results and growth, but they have suffered due to the issues in Europe and the United States.

Although most of China’s growth has been due to its exports, the adoption of the next-generation 4G networks will drive additional growth in China’s cell-phone market, as there will be a need for new phones. The demand for cell phones and smart phones is potentially huge in China.

Another strong area for growth investors is the Internet in China. The number of Internet users in China is already top in the world, with about 404 million surfing the Internet, according to the State Council Information Office in China.

China’s Internet usage could reach a staggering 490 million by 2012, and this might be a conservative estimate.

All this incredible growth will be reflected in the performance of the Chinese stock markets, as the Chinese consumer gains buying power and begins to spend more disposable income.

Chinese stock exchanges offer excellent long term investment prospects.

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