How to Play China Stocks Like the Institutionals Play in Shanghai

BEIJING (TheStreet) - Institutional investors from around the world are plowing money into Chinese equities at a torrid pace. But American retail investors who want a piece of the action are largely shut out by a Chinese government that prohibits foreign retail investors from directly trading on the Shanghai and Shenzhen exchanges. 

That can be a disappointment for investors who want to follow the path of the 22 firms like Oppenheimer Funds and Swiss Re that have gotten permission since January to play mainland China markets through the government's Qualified Foreign Institutional Investor program, otherwise known as QFII. The program currently totals 256 participants, eligible to invest up to a combined $62 billion, according to government data.

And year-to-date, the buying spree by these foreign institutions has included a combined $335 million in mainland stock purchases in September alone, China's Securities Daily newspaper said Friday. So, what's a foreign retail investor to do to gain access to these highly desirable Chinese stocks? Here are a few ways to follow in the institutional investors' footsteps, based on government and state media reports:

  • Buy New York-listed stocks of China-based companies. State-run oil companies PetroChina (PTR) and Sinopec (SHI)  are among the Shanghai-listed blue chips that QFII players like. PetroChina's shares in Shanghai have shed 2% over the past year but gained 4% on the New York Stock Exchange, while Sinopec has gained 20% in Shanghai and 29% in New York during the same period. The companies are benefiting from government support for their overseas expansions, and China's love affair with the automobile.
  • Consider buying big Chinese insurers, such as, China Pacific Insurance (CHPXF) and Ping An Insurance (PNGAY) . Both companies trade on the mainland China markets, as well as in Hong Kong, making them accessible over the counter. For example, China Pacific stock in Shanghai has climbed 7% over the past year, while its over-the-counter shares have traded between $3.40 and $3.91 during the same period. Ping An is up 14% since October 2013 on the Shanghai exchange, whereas it's down 24% from a peak earlier this year in Hong Kong, or over the counter, closing at $14.91 on Friday.
  • Invest in beer maker Tsingtao Brewery (TSGTF) , which closed Friday 3% higher in Hong Kong and a fraction higher in Shanghai from the previous day. Another smart investment is electronic supplier and smartphone manufacturer ZTE (ZTCOF) , which has seen its shares fall 13% on the Shenzhen exchange over the past year. Both companies enjoy strong consumer sales in China and are expanding to overseas markets.
  • Limit your exposure to state-run banks. Several Chinese banks trade in New York, but the only favorites among institutional investors participating in QFII are Industrial and Commercial Bank of China (IDCBF) , the country's largest, and China Minsheng Bank (CMAKY) .

Among the Chinese companies institutional firms support, but American retail investors can't reach because they are only traded on the mainland, are the upscale white-liquor distiller Moutai and a maker of traditional Chinese medicines called Tongrentang

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


 

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