Opinion: Chinese Companies With Winning Stocks Do More Than the Minimum

By Oliver Rui

After observing that the stocks of Chinese mainland-listed companies usually beat the market when foreign investors hold more than 5% of the shares, a Goldman Sachs analyst suggested recently that investors should look for companies with relatively high foreign ownership when buying Chinese shares.

The findings of some of my own academic research offer some explanations for this trend, and suggest there are three things to know about Chinese companies, as well as those from other emerging markets, before investing: foreign ownership, institutional investors and political connections. Since many factors can influence stock performance, I can’t say with certainty that these things will guarantee good stock performance. But I have seen evidence of how they have had a positive effect on the governance and transparency practices at Chinese-listed companies, and that often signals better potential for a good performance.

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