4 Steps to Investing in the Hong Kong Stock Market
This is the best time to buy Hong Kong stocks. According to an article published on Bloomberg.com, the stocks in HK are at the lowest valuation compared to the past decade. According to experts, it is caused by the clumping currency of city, which is the Hong Kong dollar.
Apparently, the Hang Seng Index is at its lowest in the past three years – even lower than trading during the time of the outbreak of SARs (severe acute respiratory syndrome).
While the slump may seem like a threat to your finances, it is actually a very good time to buy equities in Hong Kong.
When the value of the stocks is low, that means you can buy more with the money that you have. Once the market starts improving, the value of the stocks that you bought will also increase – bringing a growth to your investment.
The question is, how do you start buying stocks in Hong Kong?
How to buy equities in Hong Kong
Buying stocks is a form of equity investment. It refers to buying a share of a company. When the company profits rise, your shares will grow with it. If you can get a dividend with your shares, you even get to have voting rights that will give you a say about the direction and future of the company.
Now that you understand the basics of equity investing, here are the steps that you can follow so you can take advantage of the low market prices.
Step 1: Do your research.
The Hong Kong Exchanges and Clearing Limited (HKEx) is the securities trading and clearing systems market operator. Apart from stocks, it also sets up trading for ETFs (exchange-traded funds), REITs (real estate investment trusts), derivative warrants, and even debt securities.
If you want to know the latest in the market, you should keep a close eye on the HKEx. The Securities and Futures Commission is also the one regulating HKEx so you also have to research them.
Step 2: Research listed companies.
There are many classifications of stocks. Start by listing the industries that you can trade in. You have the Textiles and Clothing, Agricultural Products, Construction, Household Goods and Electronics, Support Services, Insurance, Coal, etc. You can choose to invest in any of these industries. Alternatively, you can use HKEx.com to view the listed companies you can invest in. Choose which Hong Kong stocks you will put your money into.
You have several options. H shares refer to foreign shares that are incorporated in the Mainland but listed in the Hong Kong stock exchange and uses HK dollars in trading. There are other shares like the A shares and the B shares that you can also trade in.
All three shares are issued by state-owned enterprises. Red chips are stocks in companies that are not incorporated in the Mainland but have a strong orientation there. These stocks are expressed in currencies and all of these can be traded.
Step 3: Know your risk tolerance.
The general rule of investing is this: the higher the risk, the greater the return and the lower the risk, the lower the return. There are various risks involved in trading in Hong Kong. You have market risks, interest rate risks, global risks, and business risks – among others. These indicate the factors that can influence the risk of the stocks you will buy.
For instance, interest rate risks are stocks that are reliant on the rise and fall of the interest rate – in relation to the exchange rates. Global risk is prominent in the Hong Kong stock exchange because it is an open market. Understand the risks and you can make smart decisions about the companies you will choose to invest in.
Step 4: Get in touch with a licensed stockbroker.
You have many stockbrokers operating in the region and a lot of them offer low-cost trading online. Apart from independent stockbrokers, major banks offer their services in securities trading. You can visit the International Investor website to check out the various brokers you can work with and their respective fees, etc.
Take note that there are brokers who trade only Hong Kong stocks while there are those who trade internationally. Choose the stockbroker that can meet your trading requirements.
Of course, you have the option to directly visit the site of the HKEx and go through the Information Service Center to have a hand on your own investment.
Step 5: Monitor your investments.
Finally, you have to keep an eye on the Hong Kong stocks that you will invest in. Read about the local events in Hong Kong and China as well. The Mainland has a great influence on the Hong Kong stock market so you need to be aware of both markets to make a decision about selling or trading your stocks.
Tips when buying equities
According to an article published on StraitsTimes.com, there are a lot of investors from mainland China buying Hong Kong stocks. That is how attractive the market is.
However, you have to avoid buying blindly. Just because people are buying, it does not mean you should as well. The same is true when investors start selling left and right.
We are not saying that you should not follow – but we want to emphasize the importance of knowing and understanding what is at stake before you make a decision.
Here are some tips that you need to keep in mind while buying equities:
- Do your research.
If you have to call the company that you plan to invest in – do it. Ask about their products and various information about their plans. After all, you intend to own a part of their company as a shareholder, you have the right to know. These companies usually have an investor relations department that can handle your inquiries. Ideally, you want to do your investigation before buying – not after.
- Learn how to wait.
Buying when the market opens is usually not a good idea. Wait until an hour or so after it opens before you buy. In case you want to sell, experts reveal that the market open is the best time to do that.
- Refrain from being emotional.
Your emotions can lead you to make the wrong choices about your investments. Even if a stock seems like a good option, let logic rule. Do not buy when happy or sad. If something is making you feel excited, hold back and take a deep breath before you make a decision.
- Learn to let go of losses.
Investments come with a level of risk. Learn to let go of your losses and do not dwell on them. It is okay to make mistakes but do not walk away without learning from them.
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