Novel coronavirus, Covid-19 has seen depressing effects on the global economy and has brought about new normalcy in everyday life’s functionalities. In particular, China has seen a swift recovery in its domestic stocks market, A-Shares, despite being the first country to hit with Covid-19. The country acted fast and is the first country to make an apparent recovery. The A-Shares market has seen booming inflows of capital from international investors, predicting a growth of 2% to 4% in the country’s GDP in 2020.
We invited Jason, DigiFinex Special Advisory Analyst, with over 15 years of substantial trading experience in the A-Shares market to share his valuable insights to our users in an exclusive Telegram AMA session on how we can benefit from this unloved market.
Jason is DigiFinex’s Special Advisory Analyst with over 15 years of trading experience in China A-Shares Stock Market. He has obtained rich experience in spot, futures, and digital currencies trading. He mainly goes mid-to-long-term trading with a solid algorithmic foundation, technical analysis as the mainstay, and fundamentals as a supplement, with multiple mature trading systems. He has long-term practical experience in China’s A-shares, and has earned USD $2 million in one year.
What Went On
Covid-19’s Impact on Chinese Economy
How the current pandemic, Covid-19, has affected, or will affect future developments of the Chinese stock market?
At present, the A-Shares market is still adapting to the developing rising trend. Given that China was the first to hit the virus and the first to overcome it, the China Stocks Market has been growing at a significant speed, measuring a rapid growth of 4 times a year as recorded in the MSCI Emerging Markets. The bullish China Stocks Market, specifically the A-Shares market, has seen capital inflow growing with international investors spurring in and joining the bandwagon. I would like to give my thoughts and say that the booming Chinese economy, under a macro or microscopic lens, is expected to set new highs in the near future.
A-Shares had a major rally earlier this year. Do you think A-Shares still has great potential in the future?
A-Shares as a financial market is still undervalued at present. Previously, the Shanghai Composite Index reached a high of 5000-6000, and is currently valued at around 3000. Moreover, the Chinese economy is still growing in the long-term. Thus the breakthrough that A-Shares had earlier this year will not be the biggest yet; there is high potential to grow further in future.
Compared with US stocks, what are the unique characteristics and advantages of the A-shares market?
Given that China was the first to hit Covid-19 and also first to make an apparent comeback, investors of the Chinese stock market has regained confidence, and the country’s economy has outperformed world equities since early Feb this year. As the US’s virus case numbers are still on the rise, people are steering away from US stocks.
US stock markets is approaching an all-time high, while the A-Shares market remains a healthy bullish trend. China’s GDP is likely to grow 2% to 4% in 2020, potentially making it the fastest growing economy in the world.
The Chinese A-Shares is a young market compared to the US; thus it has much to gain from fostering further development as equity financing can be a significant factor for economic growth.
There are many different investment channels these days, such as DeFi, staking etc. How do you think A-Shares stand out in terms of its characteristics and advantages?
The Chinese stock market, A-Shares specifically, is backed by a strong Chinese economy, solidifying everyone’s stand. On top of that, governmental policies have been issued to boost the A-share Market and encourage customers to trade. Something like A-Shares Index would be very suitable for people who look for passive income with steady growth. Projects like DeFi come with great hypes and high risks. I’d advise proceeding with caution, especially if you don’t fully understand it.
Risks & Challenges of Entering the A-Shares Market
What are the challenges that foreign investors face when entering the A-Shares market?
Due to China’s strict control over moving money in and out of China, foreign investors often face very tedious processes when getting brokerage accounts and limited choices. International investors can only trade the limited stocks of Chinese companies listed on the Hong Kong Exchange (HKEx) or through Stock Connect, a unique channel linking the Hong Kong, Shanghai, and Shenzhen Stock Exchanges.
Trading can only be done in HKD or CNH, which means that international investors must bear the exchange fees and fluctuations of currency exchange rates. Inadequate knowledge of the A-share stocks also adds to the risk of investing in China A-share market directly.
What are the risks in A-Shares investment?
Like all investments, A-Shares come with their own set of risks as well. As the tension between the US and China is escalating, though it hasn’t been much of a headwind, it might bring about a blow to both countries’ economies and impact the stock markets. Investors should always diversify their portfolios to minimize risks and maximize profits.
Crypto ETFs as a Stepping Stone to A-Shares
The A-Shares market sounds so appealing. How can normal investors jump on the opportunity?
Through index funds. The China Stock Market was initially only opened domestic investors, and have only opened its gates in 1991; international investors can only invest through QFII and RQFII, or through Synthetic ETFs, which can cause great hassle and incur costly fees.
The introduction of DigiFinex Crypto ETF will completely free investors from all those hassles and restrictions. As long as you have crypto and a DigiFinex account, A-Shares is an open door to you. What’s even better is that the high-quality A50, A300 and A500 we offer is not available through QFII; this is your only chance to get these quality indexes.
What makes DigiFinex Crypto ETFs different from those by brokers?
Fuss-free. DigiFinex Crypto ETFs are probably the easiest way for foreigners to invest in A-shares. No hassle in opening brokers accounts, no RMB accounts needed, no tedious processes. All users need is crypto and a DigiFinex account.
Borderless. Users are able to invest in one of the fastest-growing economies/China onshore markets at anytime and anywhere.
Affordable. Prospective investors are excused from traditional brokers’ ever costly brokerage fees, no foreign transaction fees, and buy A-shares with low transaction fees.
As long as you have crypto and a DigiFinex account, A-Shares is an open door to you.
Advice to Users
What kind of investors are Chinese stock indexes suitable for? Is it suitable for long or short positions?
Investors should always make their move according to their risk appetite. From value investment, the Chinese macroeconomy is still rather promising in the long term, and the current A-share index is at a low level.
So the A-shares Crypto ETFs can be held as a passive long-term investment. It’s also an excellent way for people who don’t have time to keep track of stocks from time to time, diversify investment portfolios, and earn satisfactory investment returns.
On the other hand, investors can consider short-term investments to profit from the bullish trend. If you like short term tradings, A-share indexes like A500 have enough volatility to support your arbitrage trading.
How can we earn from the A-Shares market? What advice do you have for our users?
Users should follow a portfolio approach, meaning diversification, to ensure their investments achieve their future needs. This method reduces risks during normal market conditions without compromising investment returns, although not a 100% protection against investment losses.
Some users noticed that the K-line for A50 is not continuous, why is that so?
Unlike Crypto trading, where opened 24/7, the A-Shares stock market only opens during the daytime in China, that’s why the K line is not joined.
9.30 am – 11.30 am, 1:00 pm – 3:00 pm (GMT+8 Beijing time) on business days (Monday to Friday)
Earlier we mentioned that DigiFinex offers affordable fees. What are the Crypto ETFs transaction fees like at DigiFinex?
0.1% trading fee is charged for every transaction on DigiFinex. This is significantly lower than traditional stock brokerage fees (higher than 0.2%), and there’s no commission and settlement fee.
DigiFinex is doing a promotion exclusive for A-Sharers, invite your friends to invest in A-Shares trading pairs, and get up to 90% commission fee (usually it’s 20%), and get a free upgrade to VIP level 3.
Q1. What is the difference between A50, A300, A500? How should I choose from these?
A50 index consists of top 50 “blue chip stocks” on the A-Share market, they are industry leader companies, this means smaller price fluctuation and steady growth, perfect for mid to long term holding.
Whereas A500 consist of a lot of innovation board quality stocks, fluctuation is higher, and gives more opportunities for short term trading.
A300 is in the middle.
Q2. Why invest in A-shares instead of Chinese companies listed on US exchanges or Hong Kong exchange?
A-shares are CNY denominated assets, while US stocks are dollar assets. Investing in A-shares will help to diversify market risks.
There are differences between the United States and China’s economic cycles and the valuation of listed companies. Simultaneously, some high-quality companies with high dividend yield and high growth rates are only in A-shares and not listed in the US.
Chinese companies listed in Hong Kong or the US also face a higher risk of being shorted by international investors. Most importantly, the state-owned giant companies can only be found in A-shares with support from governmental policies.
Q3. Why invest in China’s A-shares market but not other emerging markets like India and Brazil?
For sure, India and Brazil are also fast-growing economies worth looking at. In terms of purchasing stocks, I would still recommend China A-Shares. China is the 2nd largest economy worldwide and is also the fastest-growing one. On top of this, the China equity market is the 2nd largest market after the US. The market is going to be robust, with plenty of profitable opportunities. China’s population outnumbers that of any other country and provides a fertile ground for Chinese companies to thrive. One noticeable fact is that China has almost lifted itself out of the Covid-19 pandemic, while around 80K and 50K cases are confirmed daily in India and Brazil respectively. These numbers suggest that these two countries’ economy is still under threat and constraints from Covid-19. The internal problems of corruption and political uncertainty in India and Brazil also dampened the investment and business environment, hence hinder the development of the economy.
Q4. Do you think tokenized shares is the future for stocks trading?
Tokenized shares is a very smart creation that allows for seamless and restriction-free stock trading transactions. It’s still a very new concept, people need time to understand it, but it’s going to impact the traditional way of stock trading.
Q5. Are there other benefits in diversifying my portfolio in the long run?
In the short term, a diversified investment portfolio is mainly through active investment to increase income. In the long term, investing in A-Shares serves as a global asset allocation that can help individuals withstand economic impact and increase assets’ value.
We hope that users are now able to better shape a right set of investment philosophy and knowledge to grasp the right opportunities to invest in the A-Shares market through our Crypto ETFs and better withstand the negative impact caused by the pandemic.
For related articles, read DigiFinex AMA Recap.