“Uninvestable.”
That’s how most investors would have described Chinese stocks over the past decade. And they weren’t wrong.
Since peaking in 2007, China’s main stock index has fallen 40%. Compare that to the S&P 500, which has surged 300%.
But did you know China is among the best-performing markets over the past year? The main iShares China Large-Cap ETF (FXI) has more than doubled the S&P’s gain since January 2024:
For years, dodging Chinese stocks was a no-brainer. Going forward, I’d argue it’s a huge mistake.
The Chinese artificial intelligence (AI) startup released a ChatGPT competitor that matched the capabilities of Silicon Valley’s finest. And, in classic Chinese fashion, it cost about 90% less to run.
Now, we know the numbers were misleading and that China has access to more chips than it let on…
But the news still rocked the investing world, as China seemingly came out of nowhere and challenged big tech’s monopoly on AI.
And here’s the most important part…
Reading Western media, you’d think China is a place of despondence and despair—that it’s permanently on the cusp of social disorder and revolution.
In reality, China’s tech game is leveling up fast.
It’s pulled ahead in 5G. It even announced a 6G network operating from space. It has the largest high-speed rail network… trains that zip through the country at 280 mph… and is a world leader in solar energy.
And have you ever ridden in a Chinese electric vehicle (EV)?
Last year, Chinese EV maker BYD Company Ltd. (BYDDY) released a new range of hybrid vehicles. They can take you up to 1,300 miles on a single tank.
BYD surpassed Tesla (TSLA) last year as the world’s best-selling EV brand. Its stock has doubled in the past year:
A few years ago, there were no Chinese cars on the roads here in Europe. Now, they’re everywhere! BYD just opened a new flashy showroom five minutes from my house.
“Made in China” used to mean cheap, throwaway goods. I can verify that’s no longer the case.
BYDs are better than any other car I’ve ever sat in. Everything in the car is voice-controlled. It’s like a giant Alexa on wheels.
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As good as Tesla, but for half the price.
No surprise given the real key to making a great EV is a powerful, yet efficient, battery. And guess where the world’s largest battery maker resides? China.
Contemporary Amperex Technology Co. (CATL) dominates the EV battery market. Its stock has jumped 68% over the past year:
China puts more robots to work each year than all other countries combined. In 2023, it installed 276,000 industrial robots.
Xiaomi’s latest state-of-the-art EV factory is almost entirely run by robots. They assemble a brand-new EV every 76 seconds.
The vast majority of Chinese robots work in factories. But now, they’re expanding into the real world.
Maybe you’ve seen Boston Dynamics’ robots doing backflips, climbing stairs, and opening doors. You can buy one of them today for around $60,000.
China’s leading robotics company makes a robot dog you can buy for just $1,500.
China also makes more than 80% of the world’s drones. It has the largest fleet of driverless taxis and buses. And it even has robocops patrolling the streets.
China is in an innovation renaissance. I bet we’ll see another DeepSeek moment before the year ends.
As an investor, you don’t want to be caught off guard. You want to position yourself before the next disruption happens.
There were just too many incidents of Chinese companies cooking the books.
Luckin Coffee, Evergrande, and Ant Group are a few examples that made international headlines. Many more didn’t.
I still believe investing in single Chinese stocks is risky. But the combination of innovation-driven growth, attractive valuations, and shifting sentiment means the risk/reward is now skewed in our favor.
We’re in good company. Back in September, legendary hedge fund manager David Tepper went on CNBC and said with stocks trading near record-low valuations but offering “double-digit growth rates” in earnings, he was buying “everything” in China.
If buying individual Chinese stocks seems too risky, consider China’s “Nasdaq” ETF—the Invesco China Technology ETF (CQQQ). It’s up 20% since the start of the year.
CQQQ’s main holdings including companies at the forefront of China’s tech revolution.
GDS Holdings (GDS) builds AI data centers… Cambricon Technologies produces China’s best chips… and Sunny Optical makes components that help devices “see” clearly, whether that’s a phone taking photos or a car detecting obstacles.
Ignoring China’s burgeoning tech sector is no longer a prudent strategy. Invest accordingly.
Stephen McBride
Chief Analyst, RiskHedge
PS: Before I go, if you missed it, RiskHedge publisher Dan Steinhart and I just recorded The 10X Diaries...
It’s a further look into our brand-new 10-bagger research discoveries, including the #1 most important trait to look for when hunting 10-baggers.
Thank you and have a great weekend.