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B-Shares

B-Shares
InvestingMarketsInternational Markets

What Are B-Shares?

The term B-shares alludes to equity share investments in companies based in China. These shares trade on two Chinese stock exchanges: the Shanghai Stock Exchange and the Shenzhen Stock Exchange in mainland China. Shares are denominated in renminbi, which is the national currency of China, but get comfortable U.S. dollars (Shanghai) and Hong Kong dollars (Shenzhen). They are available to investment by individuals in China who have foreign currency accounts as well as foreign investors.

Understanding B-Shares

Although China's stock market is one of the largest in the world, its equity markets are relatively new, having just started development in the early 1990s. Rapid economic growth and the rise in attractive corporate expansion in China attracted a ton of interest from international investors. But investment in Chinese companies was traditionally closed to foreigners. This began to change, though, between the late 1990s and early 2000s, when the country began welcoming investment from individuals outside the country.

Chinese B-shares allow foreign investors to take part in the country's equity markets. B-shares are also called domestically listed foreign investment shares. They trade on two of the country's leading stock markets, the Shanghai Stock Exchange and the Shenzhen Stock Exchange. The face value of stocks that fall into this category is in the renminbi (the local currency) but transactions get comfortable foreign currencies, namely U.S. dollars in Shanghai and in Hong Kong dollars (HKD) in Shenzhen.

B-shares were initially offered to target investment from foreign investors. The China Securities Regulatory Commission opened up investment in B-shares from local Chinese investors in February 2001. By opening up this investment channel, local occupants are allowed to trade these shares on the secondary market.

A total of 54 companies trade B-shares on the Shanghai Stock Exchange while 55 shares trade on the Shenzhen Stock Exchange. These companies address a variety of sectors, including retail, gadgets, machinery, real estate, the travel industry, and food and beverage.

Try not to confound China B-shares with Class B shares. The latter are a share class of common stock that give less voting rights to shareholders in the western market.

Special Considerations

B-shares address one form of equity investment available to investors who want to take advantage of the Chinese market. A-shares and H-shares are also open to investors who live outside China.

A-shares trade on the Shanghai and Shenzhen exchanges. These are companies that are incorporated in China. The face value of these shares and settlement are in renminbi. China generally just allowed inhabitants to trade these shares but opened up this class of shares to foreigners under the Qualified Foreign Institutional Investor program, the Renminbi Qualified Foreign Institutional Investor program, and the Stock Connect program.

Shares of companies incorporated in China that trade on the Hong Kong Stock Exchange are called H-shares. They trade in HKD. Since shares are traded in Hong Kong, there are no bans on investment. As such, foreign investors can buy and sell H-shares. Chinese inhabitants can also trade shares gave they are qualified domestic institutional investors (QDII).

B-Shares Vs. Alternative Investments

China is one of the world's most advanced and sophisticated emerging market economies. As such, investments in Chinese stocks may have high risks but they also have a high potential for gains. There are investment funds that exist for retail investors who like to invest in diversified portfolio offerings over individual shares. Most diversified portfolio offerings are structured as mutual funds or exchange-traded funds (ETFs).

There are many other funds for investors who want exposure to China's equity market, including:

  • The Shanghai Composite Index, which is a benchmark index that holds all A-shares and B-shares offered by Chinese companies on the Shanghai Stock Exchange, gives one of the most comprehensive indexes for tracking Chinese equities.
  • The S&P China Broad Market Index is comprised of 769 of China's publicly traded equities available for foreign investors with market capitalizations ranging from $493 billion to $68 billion.
  • Investors may choose to invest in the SPDR S&P China ETF (GXC), which is a passively managed ETF that looks to replicate the holdings and performance of the S&P China Broad Market Index.

Investing in different share classes from China can be complex. There are not many funds that offer comprehensive market exposure to both A-shares and B-shares. The db X-trackers Harvest MSCI All China Equity ETF (CN) is one of the market's top funds offering this diversification. CN tracks the MSCI China All Shares Index which incorporates B-shares, A-shares, and H-shares.

Highlights

  • B-shares are equity share investments of companies based in China.
  • Chinese corporations also list A-shares and H-shares for foreign and local occupants.
  • B-shares are available to foreign investors and Chinese occupants under several investment programs.
  • The face value of B-shares are in renminbi but get comfortable U.S. and Hong Kong dollars on the Shanghai and Shenzhen exchanges separately.
  • These shares trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange.