Investing in the best China stocks and ETFs is an excellent way to diversify your portfolio and take advantage of China’s impressive economic growth. China’s economy is the second largest worldwide and is on pace to overtake the U.S. economy over the next twenty years.
There are dozens of Chinese companies that trade in the U.S. or overseas markets, which are viable investment opportunities, often trading at more attractive valuations than U.S. counterparts. With a population of over 1.4 billion and a thriving middle class, China has diverse investment opportunities that are suitable for most long-term stock market investors.
The U.S. and China are technically engaged in a trade war, providing more reason to diversify and invest in China. The battle between these two superpowers over the next thirty years will continue to see expansion in both economies, but inevitably hard to say which economy will thrive at a greater rate of return.
The COVID-19 pandemic significantly impacted the global economy, and the China stock market was hit particularly hard by the pandemic and the government’s response to shutdowns. However, as the world recovers from the pandemic, the China stock market is also stabilizing, with e-commerce dominating most of its stocks. Below are several top China stocks to invest in:
Alibaba has struggled immensely over the past few years, reflected by its imploding stock price (-78%) from its 2020 highs. Although the company has been on the receiving end of multiple challenges, 2024 is finally showing signs of easing pressures.
Firstly, China has begun to tone down its “zero Covid policy,” as recent travel restrictions suggest. China’s economy and stock market have struggled significantly during 2022 (-24.3%) vs. S&P 500 (-19.6%). Expect Beijing’s shift in policy to remove some drag on China’s economy and stock market in 2024.
Furthermore, China’s regime is beginning to take more control over large-cap Chinese companies. Ant Group’s valuation took a significant hit over the past three years after Chinese regulators canceled the highly anticipated Ant IPO. Investors have since doubted whether Alibaba would be allowed to sell its ownership stake in Ant and realize its sizeable valuation. Regulation pressure seems to be easing, which could signal a tailwind for Alibaba’s stock price over 2024.
Finally, Alibaba’s valuation trades at a mere 16 times earnings, far less than most comparable tech giants. Under the circumstance of easing macro factors, there is a considerable opportunity for price-to-earnings ratio expansion over the next year.
2. Tencent Holdings (TCEHY)
Tencent is a global conglomerate with gaming, social media, and mobile payment holdings. It owns WeChat, China’s most popular messaging app in the country. Tencent is a key holding in leading companies such as JD.com, whose shares have doubled above moving averages.
Tencent stock is among the best Chinese stocks to invest in due to its size, influence, and diversification across multiple industries.
Tencent faced regulatory concerns and financial performance challenges due to low revenue returns in the last two years. However, Tencent is poised for a significant comeback in 2024. Tencent is listed on Hong Kong Stock Exchange but trades over the counter in the U.S.
Baidu, Inc. is a Chinese technology company specializing in internet-related services and products. It is considered one of China’s top search engine providers and offers various online activity services such as maps, video, and cloud storage. Baidu’s AI technology is used in multiple industries, such as autonomous driving and healthcare. In fact, Baidu plans to open its AI chatbot “Ernie” in March 2024.
Over the years, Baidu has shown consistent revenue growth, with $16.4 billion in 2020. However, its net income has been more volatile, with a net loss of $666 million in 2020.
It also faces competition from other Chinese technology giants such as Tencent and Alibaba. Baidu’s diversification and focus on AI technology make it an attractive Chinese investment opportunity.
Pinduoduo Holdings is a top e-commerce player in China, ranked third after Alibaba and JD.com, which uses social media to link buyers and sellers. The company experienced rapid growth in recent years, driven by its innovative business model and focus on rural markets. Additionally, its bargaining focus on its customers made it outperform its larger rivals even in tough economic times.
Pinduoduo sales grew from 5% to 50%, spiking its earnings to 256% in Q3, reported in Q4 2022, and is expected to continue growing. Since then, Pinduoduo has traded higher, primarily due to its innovative model focusing on rural markets. If you are looking for a Chinese stock to invest in, Pinduoduo stoke is a good choice.
BYD is a leading Chinese electric vehicle (EV) manufacturer and the world’s largest EV maker. It offers various EV products, including cars, buses, and trucks. BYD is behind Tesla in global sales of battery electric vehicles (BEVs), but it is gradually narrowing the gap. With a growing demand for EVs globally, BYD is well-positioned to benefit from this trend.
BYD has seen its revenue grow by more than 115% in the third quarter, which shot its earning up 350%. Additionally, the profit increased to 923% in Q3, and the sales are projected to continue rising. Besides, BYD has partnerships with global automakers like Toyota, making a better stock choice in China.
Canadian Solar is a leading manufacturer of solar panels and a provider of solar energy solutions. It designs, develops, and produces solar modules, panels, and other solar energy products for residential, commercial, and utility-scale applications.
Despite being a Chinese company, Canadian Solar operates from Ontario, Canada. The cost of CSIQ shares dropped between 2019 to 2021. However, this is changing, and the company recently recorded a rise in earnings per share (EPS) of 494% and 167%.
For instance, on 18 Aug, the price of CSIQ stock rose to 47.69, a 52-week record high, followed by a sharp drop to 27.38. Overall, CSIQ continues to post impressive entries. The recently reported strong earnings results make it an attractive Chinese stock to invest in if you’re interested in the renewable energy sector.
Exchange-Traded Funds (ETFs) are investment funds investors can buy on stock exchanges and track the performance of a basket of underlying assets. These can be stocks, bonds, or commodities. ETFs are popular among investors because they provide diversification, liquidity, and low-cost exposure to various assets.
Here are the best China ETFs for long-term investors:
1. iShares MSCI China ETF (MCHI)
iShares Morgan Stanley Capital International (MSCI) ETF provides the best combination of high liquidity and competitive management fees for the leading China stock market ETF.
Top holdings in iShares MCHI include Tencent, Alibaba, China Construction Banks, JD.com, Baidu, and Pinduoduo. This iShares ETF includes a diversified combination of the largest blue chip juggernauts that compete against leading technology and financial companies throughout the western world.
2. iShares China Large Cap ETF (FXI)
iShares China Large-Cap (FXI) ETF provides a competitive investment to the leading China ETF, MCHI. FXI focuses more on large-cap China stocks, electing to only invest in 50 companies, compared to the MCHI pool of over 600 stocks.
Top holdings in iShares FXI are quite similar to MCHI, but FXI exhibits a more concentrated portfolio in only the largest Chinese companies. Both MCHI and FXI are favorite tools of Wall Street when looking for smart exposure to the overall China stock market.
Xtrackers China A-Share ETF is another fund that invests in companies listed on the domestic A-share market in China. It tracks the performance of the CSI 300 China A-Share Index and offers exposure to a broad range of sectors. This is an advantage to all foreign investors seeking to get a share of the pie in Chinese sectors like consumer goods, financials, and technology.
Xtrackers Harvest CSI A-Shares ETF is listed on the NYSE Arca exchange in the U.S. The fund is one of the most liquid funds for investing in a diversified basket of China A-Shares companies, which makes it our top pick for an A-Shares ETF to add to your portfolio.
KraneShares CSI China Internet Fund ETF (KWEB) is a highly liquid ETF investing in Chinese internet companies mostly listed in Hong Kong. This is a technology play that holds many of the largest technology companies, such as Tencent, Alibaba, Meituan, PDD, JD.com, and Baidu. KWEB is slightly concentrated in a fewer number of companies, generally holding less than 40 specific stocks.
KraneShares CSI China Internet ETF tracks the performance of the CSI Overseas China Internet Index and offers exposure to innovative companies in China that are driving the country’s technological advancement.
KWEB does tend to be more volatile than several other China ETFs due to the increased volatility in several Chinese tech names.
Invesco China Technology ETF invests in approximately 130 Chinese technology companies, focusing on those driving the digital transformation of China’s economy. Launched in 2009, it tracks a combination of several FTSE China indices, including Hong Kong-listed companies in addition to China A-Share and China B-Share companies listed in mainland China. CQQQ offers exposure to various tech sectors, including e-commerce, fintech, and software services.
Invesco Hang Seng Tech ETF is a better choice than KWEB if you are looking for greater diversification across various China technology companies.
6. China Consumer ETF (CHIQ)
China Consumer ETF (CHIQ) primarily invests in companies in China’s consumer goods and services sector. Fortunately, middle-class people in China now consume more goods and services than decades ago. Besides, the middle class is vast, an advantage for consumer brands.
China Consumer ETF tracks the performance of the FTSE China 50 Capped Index. It offers exposure to various sectors, including retail, food and beverage, and travel and leisure. So, if you’re looking for a China ETF to buy, China Consumer ETF is another better option to consider.
7. Global X MSCI China Clean Energy ETF (CHIE)
Global X China Clean Energy ETF (CHIE) invests in Hong Kong-listed companies producing or working towards clean energy technologies.
It tracks the performance of the Solactive China Clean Energy Index and offers exposure to a range of clean energy sectors. These include solar, wind, and energy storage.
Global X MSCI China Clean Energy ETF does hold some traditional upstream, downstream, and drilling energy companies, such as PetroChina, China Oilfield Services, and China Petroleum & Chemical, in addition to companies focusing on cleaner energy sources.
Although China has not appeared to be a clean energy leader amongst the G8 countries, they have made strides in working towards reducing carbon emissions over the next decades. If you want to bet on China as a clean energy leader and producer in the future, CHIE is the ETF for you.
Investing in Chinese stocks and ETFs can come with its own unique risks and challenges. Key concerns include political instability, regulatory changes, and accounting transparency. For instance, political instability and regulatory changes in China can significantly impact Chinese companies’ performance.
However, it’s important to note that not all Chinese companies pose the same level of risk. Many reputable and transparent companies operate in China as well as globally or in various industries. So, investing in Chinese companies can expose you to a rapidly growing economy and access to the world’s largest and most innovative companies. Ultimately, whether it is good to invest in Chinese companies depends on your circumstances and risk tolerance.
Investing in the best Chinese stocks and ETFs can be a viable option if you want to diversify your portfolio and gain exposure to one of the fastest-growing economies. Some of our favorite large-cap China stocks to consider include Alibaba, Baidu, Pinduoduo, Canadian Solar, and Tencent – based on valuation and potential price appreciation.
iShares China Large Cap, iShares MSCI China, and Xtrackers Harvest China A Shares funds are ETFs that have historically tracked broad Hong Kong and Chinese markets well.
However, investing in China has its unique risks, such as political instability, regulatory changes, and currency fluctuations. Even in Hong Kong-based companies, where prices are listed in Hong Kong Dollars, changes in pegs to the USD have resulted in infrequent abrupt fluctuations in stock prices and valuations.
Investing in any economy’s stock market is not without risk. It is imperative you consider your own risk tolerance and make an informed investment decision before investing. If your risk tolerance and investment goals support investing in volatile stock markets, then diversifying a portion of your portfolio into an emerging market such as China may be a smart move.
Consider your own unique risk tolerance and investment goals before making any investment decisions. Perform your own research and make educated investment decisions based on how they relate to your personal situation. Consult a licensed financial or tax advisor should you need professional advice.
The author (Josh Dudick) currently has positions in several of the ETFs listed and may purchase additional shares within the next weeks or months. This article should not be viewed as a solicitation to purchase shares in any security and is provided for informational purposes. Investors should consult a financial advisor or exercise their own due diligence before making any investment decision.
Josh is a financial expert with over 15 years of experience on Wall Street as a senior market strategist and trader. His career has spanned from working on the New York Stock Exchange floor to investment management and portfolio trading at Citibank, Chicago Trading Company, and Flow Traders.
Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business. He has held multiple professional licenses during his career, including FINRA Series 3, 7, 24, 55, Nasdaq OMX, Xetra & Eurex (German), and SIX (Swiss) trading licenses. Josh served as a senior trader and strategist, business partner, and head of futures in his former roles on Wall Street.
Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently holds areas of expertise in investing, wealth management, capital markets, taxes, real estate, cryptocurrencies, and personal finance.
Josh currently runs a wealth management business and investment firm. Additionally, he is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses professionally.