How to Invest in the Hong Kong Stock Exchange - What Investors Should Know

How to Invest in the Hong Kong Stock Exchange - What Investors Should Know

2022/01/12

What Investors Should Know 

The Hong Kong Exchange (HKEX) comprises the 5th largest stock exchange in the world. Thus, making it an attractive investment option to expand beyond domestic borders. The exchange also ranks as one of the top exchanges for companies that want an initial public offering (IPO).

Hong Kong is considered a ‘special administrative region’ of China, allowing it to pursue its economic policies apart from mainland China. However, a Shanghai-Hong Kong Stock Connect has allowed Hong Kong and China investors to trade on each other’s exchanges easily.

Investors trade Hong Kong shares electronically, making it easier for overseas traders to participate in the stock exchange. However, those wishing to get involved as foreign investors will need to understand their investment options beforehand.

If you want to start investing on the Hong Kong Exchange, here is what you need to know.


Why should you consider investing in international stock? 

As investors build strong portfolios and want to maximize their success potential and minimize risk, they often investigate their international investment options. Getting involved in the foreign stock exchange can provide people with an excellent means of diversifying their portfolios. Best practice estimates for international investing suggests having 20 percent to 40 percent of an investment portfolio based on international stocks.[BJ3] Investors will likely want about a quarter of their investments tied to foreign companies.[BJ4] 

Building your portfolio this way provides you with the best protection against market volatility and can increase your chances for wealth generation. When local politics and events impact that nation’s stock exchanges, having investments in a few different options will help to protect you. By investing in various types of markets and various exchanges, you reduce your overall risk.


What methods allow foreigners to invest in the Hong Kong Stock Exchange? 

If you are interested in diving into the Hong Kong Stock Exchange, you have a few different options available for you to try as an overseas investor. These investment strategies allow you to invest in companies listed on the Hong Kong exchange but require different levels of involvement. Each of these investment methods will offer varying degrees of benefits and drawbacks, which you will have to weigh as you consider your foreign investment options.


Invest in American Depository Receipts (ADRs)

The first option lies with American Depository Receipts or ADRs. With this type of investment, you can secure stocks in foreign companies through the U.S. Exchanges the way you would any other type of stock. Since you can buy these types of stocks on the standard American stock exchanges, you can secure them through your typical broker and platform. Those interested in investing through Futu Inc. can browse different ADRs available on the platform as well.

For many international investors, this option offers the greatest convenience and security. People receive the same level of protection and ease that they do for domestic stocks.

You will have a limited number of stocks you can choose from because there are fewer Hong Kong stocks listed on the American stock exchange than on the Hong Kong exchange.  


Select ETFs based in the U.S. that track Hong Kong stocks 

ETFs that track Hong Kong stocks comprise your next option. You can select ETFs that have their basis in the U.S. market, which again helps simplify investing in an international market. At the same time, since ETFs track groups of securities, you can select options that track different Hong Kong markets.

These account options allow you to protect an investment account based in the U.S. and subject to domestic regulations. However, you can still build wealth based on the performance of Hong Kong companies and development. Investing in this option can also help investors because you do not have to research and understand individual stocks but rather follow different markets. For companies that do not operate in the West, many investors' research before buying stock might be more challenging to uncover. The ETF allows you to reap the benefits of the Hong Kong market without requiring this level of intensive research.

Interested investors will also find several ETF options available through the broker-dealer, Futu Inc.


Invest in a broker that operates on the Hong Kong Exchange 

International investors can also work with brokers equipped to operate on the Hong Kong platform and buy the foreign stocks directly on their trading platform. This allows you to participate directly in the Hong Kong market, which requires an in-depth understanding of how the market works and a willingness to work on a platform that operates about 12 hours ahead for many American investors.

However, investors new to international trading should note that regulations do follow American investors when they go abroad. Most importantly, financial institutions that want to work with citizens of the United States have to register themselves with the SEC. Many brokers will decide not to do and thus will not take on American clients. If you want to trade directly on the Hong Kong Exchange, you must select your broker wisely.

Working with an investor experienced with American investors can also help you manage the tax regulations that will apply to you as you make money on the international markets.


How to invest in the Hong Kong stock market 

Now that you understand your options for investing in the Hong Kong market, let’s explore the steps you will need to follow to build your wealth using international stock options.

    1. Decide the strategy you want to use to invest.

First, you need to determine which of the three investment options you want to use. Novice investors will likely want to stay with one of the simpler choices of ADRs or EFTs, while investment professionals may be more equipped to invest directly.

    2. Research where you would like to invest.

If you want to invest in Hong Kong, make sure you become familiar with your investment options in that part of Asia. Study the recent trends in different local markets, the news that will impact your local investments, and the types of companies and markets that will help you build wealth with your investment. Speaking with experienced professional investors and reading reports produced for Hong Kong companies can help you tremendously if you are new to investing.

    3. Find your favorite sources of Hong Kong news.

Those experienced with the stock market know-how easily news and announcements domestically can impact the stock market. The same holds for accounts based overseas. Find reliable news sources that you can turn to and stay familiar with developments in the region and how they might impact your investment strategies. Watch how different events impact your preferred investments and track stocks the same way you would for domestic accounts.

    4. Familiarize yourself with the regulations applicable to you.

Make sure you know how taxes work when you earn money overseas. Speaking with an accountant can help you understand the documentation you will need come tax time.

    5. Monitor your accounts.

Make checking your Hong Kong accounts part of your daily account checks so that you can move forward confidently with your stock investments.


Get started with your investment goals with Futu and the moomoo app 

If you want to explore what you can do with quality international investments, you can sign up today with a Futu brokerage account. Access to ADRs and ETFs, Futu Inc., and the moomoo app[KY8]  makes it easy for new investors to build their portfolios. Explore your diversification options, the level two market data, and straightforward apps that can all make trading easier than ever before.

See how your investments can grow with moomoo and Futu Inc.

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