H-Share and N-Share Companies

By Colin (Huaizhi) Chen,

So, you have a wad of cash and a positive outlook of China's future. You want to stake a claim to the Chinese domestic growth by investing in mainland China, but is put off by the inherent risks of the Shanghai and Shenzhen markets (corruption blah blah, inscrutable accounting standards blah blah, dogs blah blah). You cry over our disparaging critiques of the A and B-shares, and is sitting on your pile of cash wondering, "WHY GOD! WHY?!?!"

Well, have we got the solution for you!

Chinese companies in the PRC are not limited to listing on the Shanghai and Shenzhen Stock Exchanges. If a company fulfills the International Financial Reporting Standards (or GAAP in the case of the US) and a list of exchange requirements, it may be dual listed internationally! In fact, that is exactly what H and N shares are.

H-Shares are shares of mainland Chinese companies approved by the PRC to be dual listed on the Hong Kong Stock Exchange (tickers are in the form of a numerical value followed by .HK, 0168.HK for example). These company shares are readily available to the international investor, and have solid transparent structures that satisfy HKSE's issuance requirements. To make things even rosier, because the Chinese yuan could not be readily exchanged for foreign money, these shares tend to trade at a significant discount from their listed prices in the Shanghai Stock Exchange. Thats right! In the absence of international arbitrage and in the presence of huge reserves of RMB, Chinese equity is cheaper abroad!



N-Shares are shares of mainland Chinese companies that are also listed in the United States. These companies tend to be large profitable companies that show case the investment potentials of China. Not only are they structured to fulfill the strenuous requirements of Sarbane Oxley, they are also cherry picked by Beijing as the poster children of investing in China. As noted by Burton G. Malkiel and his coauthors in the book, From Wall Street to the Great Wall, these companies are "the best of the best." One caveat not to be skipped is that these shares are generally traded as bundled shares. For example, according to Malkiel, one share of Sinopec traded in New York represents 100 shares traded in Hong Kong.

L-Shares, S-Shares, and T-Shares are shares of Chinese companies traded in the London, Singapore, and Tokyo respectively.

All of these share types can be found at your neighborhood discount brokerage (E-trade, Scottrade, etc.).

So how did you get so lucky as to have these share types at your disposal?

Like all growth oriented companies, the ones in China require international currencies to do business. In order to raise the necessary foreign capital, Beijing created B-Shares in the Shanghai Stock Exchange. However, to the chagrin of the chairman, B-Shares simply did not attract foreign investors (perhaps if they named it HighYield-Shares). Therefore, in 1993, to fuel its ever growing demand of international capital, Beijing approved several major companies to restructure for international issuance. All of this translate to a greater degree of access by you, the international investor, to the Chinese equity market. Lucky you!

You can find a list of H-shares from jongo.com, and a list of N-shares from the NYSE here.

Happy Investing!

-H