Chinese investors watch the screen showing the share prices (red for price up and green for down) at a stock exchange hall in Shanghai 28 February 2007. Chinese stocks bounced back Wednesday following their big plunge in a decade as regulators shifted into damage control, denying rumors of plans for a 20 percent capital gains tax on stock investments. The Shanghai Composite Index gained 3.94 percent to 2,881.07 after opening 1.3 percent lower.

8 Interesting Features of China’s Stock Markets

Ho Khinwai
Ho Khinwai

With all our [new] workshops and articles on Chinese stocks lately, you may be thinking of investing in the Chinese markets.

But before you do – you should familiarize yourself with the differences between the markets you normally trade or invest in… and with the Chinese markets.

Many of our familiar markets we trade in (ie. Hong Kong or the US) are pretty well-developed in terms of investor composition, regulations, and liquidity. This is not the case for China yet – which is still going through multiple market reforms and opening up.

Having been invested in the Chinese markets for almost 2 years, I’ve noticed a fair share of quirks that I want to share here today.

1. Red = Gain, Green = Loss

This is definitely the first oddity I had noticed when I started investing in China.

Stock price gains are shown in RED, while green is a loss. What?!

A Chinese stock screen

This is cultural – as the Chinese associate red with wealth and prosperity (in essence, a good thing).

So you shouldn’t be shocked to see all red on your portfolio if you’ve downloaded a Chinese stock app or visited a stock page that’s run by a Chinese website. It’s a good thing!

2. Dominated by Retail Traders

Unlike other matured equity markets, the Chinese market is ~80% dominated by retail investors and traders. In fact, institutional investors (ie. banks, pension funds, insurance funds) only make up around 3 trillion CNY – a long way away from the total market value of A-shares (about 20 trillion CNY).

Here are the stats Schroders had compiled for last year:

Source: Wind and HKEx, 18 Sep 2019, adopted from Schroders

Since there are more speculators in the Chinese market, expect to experience more roller-coaster rides than you would investing in other markets. This also means that for traders and patient investors, there are lots of opportunities for you!

Compare this with the US market – where less than 10% of the market is made up of retail investors.

One of the reasons why the market composition is as such is due to the strict entry requirements placed on foreign institutional capital. Combine that with a weak derivatives market (for funds to hedge against stock positions)… and many foreign institutional investors have lost interest placing their capital here.

However, expect this to change over the near future as the Chinese government relaxes QFII/RQFII rules in a bid to open up its capital markets.

3. A price limit system of +/-10%

China’s stock market has this system where stocks cannot trade above or below a 10% range from its previous day closing price.

Once a stock has hit its upper or lower limit, the stock suspends trading for the day.

This price limit mechanism was originally implemented to protect ordinary investors (since they make up the majority) from market manipulation and excessive volatility. However, there have been criticisms of whether this mechanism has been useful so far.

4. Non-Existent Short Selling

Although China’s market rules have relaxed over the years to allow investors to short-sell stocks, this is only limited to a small select few names. Moreover, the barriers to do so are high – with the borrowing pool extremely small. Hence, most investors do not bother.

This can cause stock prices to deviate from fundamentals to a large extent, as there are no short-selling mechanisms to “rationalize” the price downward.

Additionally, the government would intervene to limit shorting activities in the event of a market distress – as we’ve seen in the COVID-19 sell-off earlier this year. This means you’d be hard-pressed to find very attractive entry points with popular names like Kweichow Moutai (SSE:600519) or Ping An Insurance (SSE:601318).

Source: SCMP

5. Stocks As Horses

This one is pretty interesting.

What we commonly know as blue-chip stocks are referred to as “White horses” (白马股) by Chinese investors. As you’d expect, they generally show steady price increases and supported by strong growing earnings and good market expectations. According to various sources, the P/E of these stocks also tend to be low – allowing room for positive P/E expansions.

White horses are generally favored, tend to be well-covered by analysts, and frequently appear in the news.

Then we also have the “Dark horses” (黑马股).

These are stocks that investors aren’t optimistic about… but eventually emerge with sharp rises in its stock price.

Source: Winner Wealth Network, adopted from

These sudden gains may be due to technical bullishness, or have turned-around from its negative state (ie. finally reporting growth, new national policies support the business, acquitted from major lawsuit, etc.).

Dark horses are contrarian plays – and their stock price may still be quite volatile even when they have broken out of investor pessimism. According to reports, they are pretty hard to spot before the fact – and traders usually fall prey to false breakouts with their supposed dark horse.

6. CR3, 5, 8…

When reading Chinese analyst or industry reports, you may find this term “CR3” or “CR5” or “CR10” being mentioned and have no clue what it means.

Source: Eastmoney

Oddly enough, a quick Google search also does not seem to pull up relevant info with regard to this “CR” term… (if you find one – post it in the comments below)

CR refers to the firm concentration within an industry. For instance, CR3 would refer to the 3 most dominant firms (typically by sales revenue). CR5 would be the top 5… and so on.

It is usually used to analyze if an industry is fragmented, or how a particular company’s market share measure up with other dominant players.

7. Stock Codes Organized by Markets

Ever looked at a stock symbol (ie. “TWLO”) and wondered if it was listed on the NYSE, NASDAQ, or the American Stock Exchange?

On the Chinese markets, there is little confusion as each ticker symbol indicates which market it is listed on.

China’s stock tickers have 6 numbers – with the first 3 digits indicating the market or platform, and the last 3 being the unique identifier.

Stock SymbolMarket / Platform
600XXX – 605XXX**Shanghai Stock Exchange (SSE) Main Board, Class A shares
900XXX*SSE Main Board, Class B shares
688XXX*SSE Science & Technology Board (STAR Market)
000XXX – 001XXXShenzhen Stock Exchange (SZSE) Main Board
002XXX – 003XXX**SZSE SME Board
300XXX*SZSE Chinext Board
* no access for foreign retail investors
** certain stocks are not accessible to foreign retail investors

8. Most Analyst Reports Are A “Buy”

According to Woodsford Capital’s CEO Zhijian Wu, CFA, a study done by Professor Gu Zhaoyang from CUHK found that over 96% of Chinese sell-side analyst reports issued a “buy” or “strong buy”.

The reasons can be summarized as follows:

  1. they do not want to offend the firm’s executives and get sued
  2. a negative report may impact fund clients’ positions and cause funds to switch away to other brokers that do not “rock the boat”
  3. if from a bank, it may cause them to lose subsequent business (ie. IPO underwriting, debt issuance, etc) with that company
  4. a negative report does little to bring in additional transaction volume (ie. brokerage commissions) versus a positive one

Understanding this, new investors in China should take these analyst reports with a pinch of salt and do your own due diligence.

The Lucky 8

That is it for this article. If you’ve got one interesting feature we didn’t add here – feel free to leave it down below in the comments!