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China is the second-largest economy in the world after the USA with a GDP of 14.72 trillion USD in 2020. The country has the largest population on the planet, which in 2022 sits at over 1.4 billion people. With this huge economy, it should not be surprising that the Chinese stock market is also huge with very lucrative opportunities up for grabs.
The most liquid and attractive stocks are listed on the US and Hong Kong stock exchanges. Namely, Alibaba, Nio, NetEase, Baidu, and more. These companies are market leaders in different fields and offer good investment opportunities.
"[Investing in China] ..it's easier to make a big acquisition in the United States; I have to do more work if I'm looking beyond the borders, but I love the idea of doing it" - Warren Buffett
The US stock market is preferred by many companies as there are good investment opportunities and transparent policies. One reason why so many Chinese companies go public on US stock markets is to protect themselves from Chinese government interventions. The NYSE, NASDAQ, and HKEX are among the most well-trusted stock exchanges around the world.
As of October 2022, Alibaba’s market capitalization is higher than $174.5 billion USD, making it the largest US-listed publicly traded Chinese company. The company specializes in e-commerce, retail, internet services, and technology. Alibaba or BABA stock is actively traded on the New York Stock Exchange (NYSE). Their stock is highly liquid, and the company is well-established and known around the world. Alibaba’s headquarters is located in Hangzhou, China. The company was founded on April 4, 1999, and has grown to dominate the e-commerce industry.
"So with the growth of the internet population and with the growth of the
internet evolution Alibaba built our business following our mission which is make it easier to do business anywhere" - Daniel Zhang
JD.com Inc also called Jingdong is the biggest retail company in China. The company is listed in the NASDAQ 100 and Fortune Global 500 Indices. Their headquarters is located in Beijing, China. The company was founded on June 18, 1998. As of October 2022, the company’s market capitalization is over $59.9 billion USD, and employs more than 390 000 people.
"Because [!we!] reduce the times you move the product, so our cost is very low and because we were closer to the final consumer our efficiency is very high" - Liu Qiangdong
Pinduoduo Inc (PDD) is publicly traded on NASDAQ. The company is relatively young, founded in 2015, and connects producers of agricultural goods with consumers in China. The company has grown rapidly. In 2020, Pinduoduo was already employing 7 986 workers. In 2019 alone, nearly 12 million Chinese farmers sold their produce to Chinese customers using this platform. As of October 2022, their market capitalization is more than $59 billion USD, and an average trading volume of over 11M, making the stock highly liquid.
"Because all our funding [!for!] actually is from a technology background, so we always believe that technology can give us a new way, a new power, to approach some very difficult and complex problems" - Lei Chen
NetEase Inc is a Chinese internet services provider. Moreover, the company makes PC and mobile games and provides advertising and email services in China. NetEase also has its own music streaming service called NetEase Music. Their headquarters are located in Guangzhou, China. In 2021 the company already employed more than 32,000 people, and as of October 2022, the market capitalization is over $40.4 billion USD.
"In fact, I think Chinese high tech companies are very good at innovation. I can say, without humility, we are definitely a world leader in the development of mobile games. In China, not only games, but also payment, shared bikes, and takeaways, which are far ahead compared to the rest of the world" - Ding Lei
Baidu is China’s Google. The company is a dominant search engine in the country and operates under the Chinese government’s regulations. In addition, the company is working on improving Artificial Intelligence and uses AI in its search engine. In 2021, Baidu had 45,500 employees. As of October 2022, the market capitalization is higher than $26 billion USD. You can find this stock on NASDAQ under the name BIDU.
"In terms of language models, Baidu still has accumulated quite a bit of expertise; we have invested in AI for over a decade" - Robin Li
New Oriental Education & Technology is publicly traded under the ticker EDU. The company provides private educational services in China. In 2021 the firm was employing over 88,000 people.
2021 has been a rollercoaster of a year for EDU stock. The stock price went from $195 USD in February 2021 to $19.70 in August 2021. As of October 2022, the market capitalization is just over $3.5 billion USD and the average trading volume is higher than 1.9M. These sharp price drops are what make certain stocks risky. On the other hand, for some traders, it’s an opportunity to acquire stocks when they have a discounted price.
“AI can be a better teacher than human within 5 years” - Yu Minhong
NIO Inc is a Chinese electric car manufacturer. Headquartered in Shanghai, China, the tech giant is fairly young, established in 2014, and aims to beat Tesla. What sets NIO apart from other EV makers is that it has worked tremendously on developing battery-swapping technology and has created battery swap stations. The car design studio is located in Germany and research and development is conducted in Silicon Valley, California. As of October 2022, the market capitalization is higher than $16.6 billion USD and the average volume is greater than 121M, making the company stock highly liquid.
"I think our investors don't understand our long-term value. From the standpoint of Nio, we have faith in our long-term value" - William Li
Keep in mind that the future is electric. Chinese companies have access to the world's lithium and other important resources thanks to Chinese government policies.
Vipshop is an online e-commerce company founded in 2008. Its headquarters are located in Guangzhou, China. The company is publicly traded on the New York Stock Exchange under the ticker VIPS. As of October 25, 2022, the company’s market capitalization is $4.39 billion USD. In 2021, Vipshop had 8,013 employees, which is a more than 5% increase from the previous year.
The Chinese government plays a crucial role in the creation and growth of companies. If you compare how democratic countries and communist Chinese leaders conduct foreign policies, you’ll get a very different picture. For instance, the US and European governments often stop investing in countries that have high levels of corruption. Chinese foreign policy does not care about authoritarianism, corruption, and the rule of law. All it cares about is resources.
Rich streams of resources coming from the African continent and other places, cheap energy sources like coal, a huge workforce, and loose environmental policies have made China into the world’s factory. The world's top tech companies are designing their products in Germany, the USA, Italy, and other places, but they choose China for manufacturing.
The government provides funds and programs that help new Chinese companies emerge. The country is known for a high number of State Owned Enterprises, SOEs. It’s important to note that some of the SOEs in China are fully owned by the government, while others are partially government-owned and partially publicly traded in the stock market.
There are a number of things to consider when investing in Chinese SOEs. Having a government on your side gives you a lot of privileges. SOEs get more exclusive government projects and the politicians change rules to benefit the state-owned companies. On the other hand, government workers have very little motivation to take good care of state property and the level of corruption is high.
Top Chinese stocks are highly liquid, meaning a lot of volume is traded every day. When it comes to trading certain assets, going to a place where there are lots of buyers and sellers can lower spreads and make investing cheaper. What’s more, high liquidity indicates a lot of people are interested in the stock. Liquidity and volume are what move the markets. Whether you are a long-term investor or a short-term speculative investor, high liquidity can be equally beneficial for your trading.
Purchasing Chinese stocks can help diversify your portfolio. As you may already know, investing can be risky. To decrease the risks, many investors spread out their investments, so that when one sector fails, they don’t lose everything.
In addition, Chinese stocks have a lot of growth potential. From 1989 to 2022 China's GDP has been increasing by 9.16 percent per year on average. The Chinese infrastructure is modern and unparalleled. The country offers a large pool of highly skilled workers. What’s more, the government is focused on improving trade infrastructure including railroads, ports, and the like. For many years Chinese products were seen as low quality and cheap. In today’s world, the Chinese have become specialized in production and increased the quality gradually to the point where “made in China” is no longer synonymous with poor quality.
Yes. Some Chinese companies are listed on the US stock exchange. What’s more, investing in US and Hong Kong stock exchange-listed companies is preferred by many traders as they provide higher liquidity.
Many long-term investors prefer to wait for economic hardships and sharp price drops in stocks to purchase them at a discounted price. However, guessing the bottom is very difficult and often prices keep dipping. Risk management strategies should be applied to every trade you make.
Yes. You can invest in State-Owned Enterprises (SOEs). However, it must be noted that you can only invest in companies that are partially government-owned and partially traded in the stock market.