How You Can Start Trading Hong Kong Stocks on SGX




This article is sponsored by Societe Generale, Singapore branch. All opinions expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not responsible for any financial loss that may arise from any transaction and readers are encouraged to do their own due diligence. You can view our full editorial policy here.

For Singapore investors, investing in overseas listed companies is becoming increasingly common in our globally connected financial world. Today, most local brokerage firms will provide access not only to the Singapore Stock Exchange (SGX), but also to a wide range of major exchanges around the world.

Apart from US stock exchanges such as NYSE and NASDAQ, other important stock exchanges include mainland China stock exchanges (Shanghai Stock Exchange, Shenzhen Stock Exchange), Euronext in Europe, Tokyo Stock Exchange in Japan, and Hong Kong Exchange.

With a market capitalization of approximately US$5.43 trillion, the Hong Kong Stock Exchange (HKEX) is much larger than the SGX. It also opens up many more opportunities for retail investors to invest in huge global companies. According to the HKEX, Hong Kong has been the world’s top IPO location for seven of the past twelve years (from 2009 to 2020).

Hong Kong Exchange – The financial gateway to invest in some of mainland China’s biggest companies

Although there are huge companies in Hong Kong such as AIA, Hang Seng Bank and Hong Kong Exchanges & Clearing, it should be noted that Hong Kong-based companies are not among the largest companies by market capitalization listed on the HKEX.

Instead, the biggest companies listed on the HKEX are mainly mainland Chinese companies 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 seeking to invest in some of the major companies in China.

Read also : Why Every Singaporean Investor Should Consider Investing in the China/Hong Kong Market

For anyone new to the HKEX, a common term you will come across 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 stocks is not too different from investing in the SGX. Like Singapore, Hong Kong has no capital gains tax or dividend tax, so investors don’t have to worry about taxes hampering their returns. Given the relatively close relationship between the two cities, Singaporean investors would find many HKEX-listed companies familiar. For example, Razer, founded by Singaporean Tan Min Liang, is listed in Hong Kong. Other companies we may find familiar or already using their products or services include HSBC, Lenovo and Xiaomi.

Perhaps the main difference Singaporean investors should consider when investing in Hong Kong would be the exchange rate and political risk. We generally invest using the Hong Kong dollar (HKD) when investing in companies listed in Hong Kong. We also have to be sensitive to the political climate in Hong Kong, which is very different from what we are used to in Singapore.

Investing in Hong Kong-listed companies can start here on the SGX

To some extent, we can draw a parallel between investing abroad, traveling and shopping abroad (when travel was allowed before the pandemic). When we live in Singapore, we are limited to products offered in local stores. However, when we travel abroad, we have access to a much wider, and perhaps cheaper, range of products from stores in the countries we visit.

When investing in stocks, the same concept applies. The Singapore Stock Exchange (SGX), which is our local stock exchange, has over 600 companies, while the HKEX has over 2,000 listed companies. This does not mean that one exchange is superior to the other, because more does not necessarily mean better. However, from an investor’s perspective, being able to choose from more investment opportunities across different industries and geographies 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 to invest in Hong Kong-listed companies. If you don’t already know, there are ETFs we can invest in to give us exposure to companies 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 wish to trade short-term based on price movements with the use of leverage, derivative products such as Daily Leverage Certificates (DLC) can be used. Introduced in 2017 on the SGX, DLCs provide investors with fixed daily leveraged exposure to the indices or individual stocks that the DLC tracks. This allows investors to trade and capture magnified returns on short-term market movements.

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 are also a significant number of DLCs that track the performance of individual Hong Kong-listed stocks such as Alibaba , Xiaomi, Lenovo, or indices such as the Hang Seng Index.

By purchasing these DLCs, investors are exposed to the price movement of those stocks or indices that the DLCs track. This makes DLCs suitable for short-term investors who want to use 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 in both directions of the market. So if you think the prices will go down in the short term, you can express your views by purchasing a short DLC. If you think the prices will go up, you can express your point of view by purchasing a long DLC.

For example, someone investing in a 5X long DLC ​​will see a daily return of 25% if the price of the underlying asset rises 5% on that particular trading day, before fees and charges. Of course, the use of leverage also carries additional risks. If the price moves against the investor’s position, the losses will also be magnified.

As DLCs are designed specifically for sophisticated retail investors who want to actively trade and earn higher returns from the daily movements of the underlying stocks or indices, investors must be qualified for a Specified Investment Product (SIP) in order to to trade DLCs. Those who are less knowledgeable or do not have a high risk tolerance should avoid the product. Investors should fully understand their risk exposure before they start trading.

To visit Societe Generale DLC website to learn more about product features, including the risks associated with trading DLC.

Read also : Investors in Singapore: What is SIP Accreditation and Should You Get It?

If you want to know 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’ > ‘Prices’ > ‘Daily Leverage Certificates’ to view all existing DLCs currently trading on SGX.

Source: SGX

Note: Past performance of Daily Leveraged 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 has to offer if they wish to learn more. exposure to indices and single stocks in Hong Kong.

Warning

This advertisement has not been reviewed by the Monetary Authority of Singapore. The opinions expressed in this article represent the personal and independent opinions 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 Daily Leverage Certificates (the “DLCs”), and nothing herein should be taken as financial advice or recommendation. The price can rise and fall rapidly and holders may lose their entire investment. Past performance is no guarantee of future performance. Investments in DLCs involve significant risks, please see dlc.socgen.com for further information and relevant risks. DLCs ​​are reserved for qualified investors for Specified Investment Products (SIPs).


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