"If you want to see capitalism in action, go to Hong Kong." ~ Milton Friedman

Hong Kong has come a long way. As a British colony, it was described as a “barren rock” by former British foreign secretary and prime minister Lord Palmerston.

Yet, as of December 2023, the Hong Kong Stock Exchange (HKEx) was the seventh-largest stock exchange in the world and the fourth-largest stock exchange in Asia by 澳洲幸运5官方开奖结果体彩网:market capitalization.

Read on for some direct and indirect routes that investors can take to g൩ain exposure to companies listed on the HKEx.

Trading on the Hong Kong Stock Exchange

Since the British handoff in 1997, 澳洲幸运5官方开奖结果体彩网:Hong Kong and mainland China have operated under the principle of 𝓀one country, two systems.

Hong Kong is called a 澳洲幸运5官方开奖结果体彩网:spec꧂ial administrative region (SAR) and is free to pursue capitalism and manage its own taxes, money, trade, foreign exchange, and currency (the Hong Kong dollar).

In November 2014, the Shanghai-Hong Kong Stock Connect was launched. It established a cross-border channel for access to stock markets and investment. This arrangement allowed investors in mainland China and Hong Kong to trade specified companies listed on each other’s stock exchange through local securities firms.

Exchange-Traded Funds

The easiest way for U.S. investors to gain exposure to Hong Kong's securities is through 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs). These funds provide diversification as well as ease of trading without the currency risk. Popular 𒐪exchange traded fund🌜s in the category include iShares MSCI Hong Kong ETF and Franklin FTSE Hong Kong ETF.

The iShares MSCI Hong Kong ETF (EWH) is invested primarily in large- and 澳洲幸运5官方开奖结果体彩网:mid-cap companies in the financial and real estate space. The fund, launched in 1996, is diversified across 33 holdings and, as of Jan. 25, 2024, managed net assets worth $510.3 million. It has an expense ratio of 0.50%.

The Franklin FTSE Hong Kong ETF (FLHK), launched in 2017, also provides exposurꦅe to large- and💙 mid-cap companies in Hong Kong. The fund has 76 holdings and as of Jan. 24, 2024, managed $10.17 million in assets. It has a low expense ratio of 0.09%.

American Depositary Receipts

Investors in the U.S. can select Hong Kong stocks listed as 澳洲幸运5官方开奖结果体彩网:American depositary receipts (ജADRs) on the New Yꦛork Stock Exchange (NYSE), the Nasdaq🐷, or over-the-counter (OTC) exchanges.

ADRs are a hassle-free way to own foreign stocks as they are traded on U.S. exchanges and can be bought just like 澳洲幸运5官方开奖结果体彩网:common shares through a brokerage account.

The drawback with ADRs is the limited choice; only a few Hong Kong stocks are registered as ADRs on U.S. exchanges. In fact, as of Jan. 14, 2ᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ024, such ADRs numbered eight. More are available in the OTC markets, however.ꦓ As of the same day, there were 113.

Some popular Hong Kong ADRs include AIA Group Ltd. (AAGIY), Sun Hung Kai Properties Limited (SUHJY), and Hysan Development (HYSNY).

Invest Directly T𒁃hrough a Broker in Your Country

ETFs are an indirect way to hold stocks on the Hong Kong Stock Exchange. ADRs are a direct way to own them, but choices are se𒁃riously li꧃mited.

Investors who are keen on participating directly and widely on the Hong Kong Stock Exchange can open a brokerage account with a brokerage firm in their own꧂ country that offers a platform for international trading.

Brokerage firms that offer international access generally offer many international exchang🔯es, including Hong Kon🌳g’s. Make sure to research brokers thoroughly before trading with them.

Check the account type (discretionary or non-discretionary), the commission structure, and regions and countries covered. In the United States, look for SEC registration along with membership in the Securities Investor Protection Corporation (SIPC) and the 澳洲幸运5官方开奖结果体彩网:Financial Industry Regula𒀰tory Authori🅰ty (FINRA).

Some of the prominent U.S. brokerage firms for trading foreign stocks are 澳洲幸运5官方开奖结果体彩网:Interactive Brokers, E*TRADE, Fidelity Investments, and 澳洲幸运5官方开奖结果体彩网:Charles Schwab.

Invest Directly Through a Hong Kong Based B🧸roker

Investors from across the globe can invest online through local stockbrokers based i﷽n Hong Kong. However, there are restrictions on residents of certain countries and certain hurdles Hong Kong brokers must clear to offer services.

In the U.S., for example, financial institutions not registered with the SEC cannot solicit U.S. citizens as clients.

In addition, the 澳洲幸运5官方开奖结果体彩网:Foreign Account T🌠ax Compliance Act (FATCA) implemented additional restrictions. As a result, some Hong Kong brokers avoid U.S. clients. However, residents of other nations may not face the same kinds of issues.

The Bottom Line

The Hong Kong Stock Exchange can be a great alternative for investors loo♔king to diversify their portfolios beyond U.S. or European stocks.

Investors should choose tꦰheir preferred route to the Hong Kong Stock exchange after understanding the costs, risks, tax considerations, and regulatory compliance related to each investing option.

On the whole, investors should take care to base their investment decisions on a variety of data, including company earnings and economic factors. Don't rely only on price movements.