Investing in China Through U.S. Markets

Alibaba and Other Easy Chinese Investments

Investing in China Through U.S. Markets
December 24, 2014

The recent Alibaba IPO was the largest in history. The Chinese e-commerce company’s initial public offering on September 19 raised an eye-popping $25 billion. This boosted its market capitalization to $215 billion, ranking it just behind Apple, Google and Microsoft and just ahead of Facebook and IBM.

If you are a U.S. investor, you might think that since Alibaba is a Chinese company, it will be difficult for you to buy shares and get in on the action. However, Alibaba is listed on the New York Stock Exchange, so opening an international trading account with a brokerage firm that permits investing in a foreign exchange is not required, as it would have been if the company were listed on the Hong Kong Stock Exchange.

More Chinese Investment Opportunities

Many successful Chinese companies are listed on U.S. markets like the New York Stock Exchange, the American Stock Exchange and the NASDAQ. Some investment bankers believe that the excitement generated by the Alibaba IPO will inspire more Chinese companies to list in the U.S.

Other Chinese Internet and technology businesses that conducted IPOs in the U.S. this year include e-commerce firm JD.com Inc., which went public on the NASDAQ in May, and Weibo Corp., essentially the Chinese version of Twitter, which went public on the NASDAQ in April.

There are currently more than 200 Chinese companies traded on a U.S. stock exchange. Following is a partial list of these companies, including their ticker symbol, sector and industry:

  • China Southern Airlines (ZNH) — Sector: Transportation. Industry: Airlines.

  • Concord Medical Services (CCM) — Sector: Health. Industry: Imaging.

  • General Steel (GSI) — Sector: Basic materials. Industry: Steel and iron.

  • China Jo-Jo Drugstores (CJJD) — Sector: Consumer. Industry: Pharmacy.

  • ATA (ATAI) — Sector: Services. Industry: Testing.

  • Actions Semiconductor (ACTS) — Sector: Technology. Industry: Semi-conductors.

  • Deer Consumer Products (DEER) — Sector: Consumer. Industry: Kitchen.

  • Global-Tech Advanced Innovations (GAI) — Sector: Consumer. Industry: Appliances.

  • Zoom (ZOOM) — Sector: Technology. Industry: Mobile software.

  • Country Style Cooking (CCSC) — Sector: Services. Industry: Restaurants.

For a complete list of Chinese companies currently listed on U.S. stock markets, visit http://bricadr.com/.

An Easy Diversification Strategy

With so many Chinese companies listed on U.S. stock exchanges, it is easy to add exposure to them to your portfolio. This is one way to increase diversification and thus reduce volatility in your portfolio. For example, if the U.S. economy should falter and the shares of U.S.-based companies start falling, the Chinese economy could be rising, thus helping offset losses in U.S. companies.

Keep in mind that there are unique risks involved when investing in overseas companies — including currency exchange risk and political, economic and social risk — even if the companies are traded on a U.S. stock exchange. With Alibaba, and many Chinese technology companies, there is added structural risk, as it is illegal in China for foreigners to invest directly in Chinese internet companies. Rather, they must invest in a “variable interest entity: (VIE) – essentially owning shares in a holding company in the Cayman Islands with a direct contractual claim on the profits of Alibaba.

Since shareholders do not own Alibaba directly, they have virtually no control in the direction of the company. With the direction in the hands of a few individuals (primarily Alibaba founders Jack Ma and Simon Xie), investors have limited legal recourse in case something goes awry or the “rules” suddenly change. Chinese courts are unlikely to provide any relief to outside investors, given that direct foreign investment is already prohibited.

So be sure you carefully assess these risks and potential rewards before investing in Chinese companies.

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