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For Singapore investors, investing in companies that are listed on overseas exchanges is becoming increasingly common in our globally connected financial world. Today, most local brokerage firms will provide access not just to the Singapore Exchange (SGX), but also to a wide range of major stock exchanges around the world.
Besides US stock exchanges such as the NYSE and the NASDAQ, other major exchanges include stock exchanges in mainland China (Shanghai Stock Exchange, Shenzhen Stock Exchange), Euronext in Europe, Tokyo Stock Exchange in Japan and the Hong Kong Exchange.
With a market capitalisation of about US$5.43 trillion, the Hong Kong Exchange (HKEX) is much bigger than the SGX. This also opens up much more opportunities for retail investors to invest in huge, global companies. According to the HKEX, Hong Kong has been the top IPO venue globally in seven out of the past twelve years (from 2009 to 2020).
Hong Kong Exchange – The Financial Gateway To Investing In Some Of Mainland China’s Biggest Companies
While there are huge companies in Hong Kong such as AIA, Hang Seng Bank and the Hong Kong Exchanges & Clearing, it’s worth noting that Hong Kong-based companies are not among the biggest market cap companies listed on the HKEX.
Instead, the biggest companies listed on the HKEX are mostly companies from mainland China such as Tencent, Alibaba and Meituan with a global presence and have chosen to list in Hong Kong. This makes Hong Kong, and by extension – the HKEX, an important gateway for Chinese companies seeking foreign investors, and vice versa, for non-Chinese investors looking to invest in some of the leading companies in China.
Read Also:Why Every Singapore Investor Should Consider Investing In The China/ Hong Kong Market
For anyone new to the HKEX, one common term that you will encounter is H-shares. As explained by the HKEX, H-share companies are companies incorporated in mainland China, whose listings in Hong Kong are approved by the China Securities Regulatory Commission (CSRC). More importantly for non-Chinese investors, H-shares can be freely traded without any restrictions.
For Singapore investors, investing in Hong Kong shares isn’t too different from investing in the SGX. Like Singapore, Hong Kong has no capital gain or dividend tax so investors don’t need to worry about taxes eating into their returns. Given the relatively close relationship between the two cities, Singapore investors would find many companies listed on the HKEX familiar. For example, Razer, founded by Singaporean Tan Min Liang, is listed in Hong Kong. Other companies that we may find familiar, or are already using their products or services, would include HSBC, Lenovo and Xiaomi.
Perhaps, the main difference that Singapore investors should consider when investing in Hong Kong would be the foreign currency exchange and the political risk. We typically invest using Hong Kong Dollar (HKD) when investing in companies listed in Hong Kong. We also need to be attuned to the political climate in Hong Kong which is vastly different from what we are used to in Singapore.
Investing In Hong Kong Listed Companies Can Begin Right Here On The SGX
To a certain extent, we can draw some parallel between investing overseas, with travelling and shopping overseas (when travelling was allowed before the pandemic). When we live in Singapore, we are limited to the products that are offered in the local shops. However, when we travel overseas, we get access to a far wider, and possibly cheaper, range of products from the shops in the countries that we visit.
When investing in stocks, the same concept applies. The Singapore Exchange (SGX), which is our local bourse, has more than 600 companies while the HKEX has more than 2,000 companies listed. This isn’t to say that one exchange is superior to the other – because more doesn’t necessarily mean better. However, from an investor’s point of view, being able to choose from more investment opportunities across different sectors and geographical regions is always better than not having the option at all.
The good thing for Singapore-based investors is that we don’t necessarily need to invest in the HKEX in order to invest in Hong Kong-listed companies. If you don’t already know, there are ETFs that we can invest in to give us exposure to companies that are listed in Hong Kong. This way, we can invest in a diversified portfolio of Hong Kong stocks via an ETF listed on the SGX.
Similarly, for investors who have a shorter investment time horizon and want to make short-term trades based on price movements with the use of leverage, derivative products such as Daily Leverage Certificates (DLCs) can be used. Introduced back in 2017 on the SGX, DLCs offer investors fixed daily leverage exposure to the indices or single stocks that the DLC is tracking. This allows investors to trade and capture amplified returns on short-term market movement.
Read Also:Daily Leverage Certificate – What You Need To Understand About This New Product Before You Start Trading It
While there are DLCs that track Singapore stocks such as DBS, OCBC, UOB, SingTel and City Development, there is also a significant number of DLCs that track the performance of single stocks that are listed in Hong Kong such as Alibaba, Xiaomi, Lenovo, or indices such as the Hang Seng Index.
By buying these DLCs, investors get exposure to the price movement of these stocks or indices that the DLCs are tracking. This makes DLCs suitable for short-term investors who want to utilise leverage to increase their potential returns. Currently, the DLCs offered on the SGX offer 5X and 7X leverage. With DLCs you can take a position on either direction of the market. So if you think that prices will go down in the short-term, you can express your view by buying a short DLC. If you think prices will go up, you can express your view by buying a long DLC.
For example, an individual who invests in a 5X long DLC will see a daily return of 25% if the price of the underlying asset increases by 5% on that particular trading day, before cost and fees. Of course, the use of leverage also comes with additional risks. If price moves against the investor’s position, losses will likewise be magnified.
As DLCs are designed specifically for sophisticated retail investors who want to trade actively and make higher returns from the daily movements of the underlying stocks or indices, investors need to be Specified Investment Product (SIP) qualified in order to trade the DLCs. Those who are less knowledgeable or do not have high-risk tolerance should avoid the product. Investors should fully understand their exposure to the risks involved before they start trading.
Visit Societe Generale’s DLC website to learn more about the product features including the associated risks of trading the DLCs.
Read Also:Investors In Singapore: What Is SIP Accreditation And Should You Get It?
If you are keen to find out more about the full list of DLCs available on the SGX, check out the Societe Generale DLC website. You can also navigate the SGX website under ‘Securities’ > ‘Price’ > ‘Daily Leverage Certificates’ to see all the existing DLCs that are currently trading on the SGX.
Note: Past performance of the Daily Leverage Certificates (DLC), or past performance of an underlying asset, is not indicative of future performance.
Whether we choose to invest long-term in Hong Kong via ETFs, or short-term via DLCs, Singapore-based investors who are new to the Hong Kong market can check out what the SGX offers if they want to gain exposure to indices and single stocks in Hong Kong.
This advertisement has not been reviewed by the Monetary Authority of Singapore. The views expressed under this article represent the personal and independent views of the author and do not constitute investment advice. The content of this article does not form part of any offer or invitation to buy or sell any daily leverage certificates (the “DLCs”), and nothing herein should be considered as financial advice or recommendation. The price may rise and fall in value rapidly and holders may lose all of their investment. Any past performance is not indicative of future performance. Investments in DLCs carry significant risks, please see dlc.socgen.com for further information and relevant risks. The DLCs are for specified investment products (SIP) qualified investors only.