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Investing in China stocks

The Chinese stock market has been a long-standing investment opportunity for many traders, for both in the UK and internationally. However, the stability of Chinese tech companies has been compromised in recent years, due to the US-China trade war and the COVID-19 pandemic that threatened to crush one of the largest economies in the world.

However, China’s tech industry is starting to see a resurgence within the stock markets​, particularly for the e-commerce, social media and streaming service​ sectors. China tech giants such as JD, Alibaba and Tencent have some of the largest market capitalisations in the world right now. This article contains a list of seven of the most promising tech stocks to watch, based on current share price and overall market capitalisation.

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China’s tech industry

Chinese tech stocks are made up of both blue-chip companies​ and growth stocks. Blue-chip stocks are often well-established, stable and provide consistent profits to investors. These are very useful for portfolio diversification, as they can help to offset the risk of trading smaller and more volatile shares, such as penny stocks​, that may or may not grow to the same reputable level in the future. Growth stocks are usually funded by venture capital, a form of private financing for small or start-up businesses that have a high growth potential. Institutional investors​ such as mutual funds tend to invest in these companies at an early stage with the aim of making more profits in the long-term.

Buying shares in Chinese companies is especially promising in regards to the 5G revolution. 5G stocks are a hot topic worldwide, where the general consensus is that Chinese tech giant Huawei is the main competitor, along with other US-owned companies including Verizon and Qualcomm. However, for as long as the US-China ‘tech war’ continues, the US is lacking 5G equipment and ideas, allowing China to overtake in the race for new technology. Read our article on the best 5G stocks to watch​.

China’s stock market worth

There are two main stock exchanges within mainland China, Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE). These have two of the largest market capitalisations in the world, the first with a total of around $5.1 trillion and the latter with a total of around $3.6 trillion. Learn more about China’s stock exchange trading hours​.

Chinese search engine market share

In particular, the Chinese search engine market share accounts for a large proportion of the overall stock market. China’s largest search engine is undoubtedly Baidu.com, which holds around 76% of all search revenue online. It is the second largest search engine in the world, after US tech giant Google. Baidu’s main rival in recent years is Qihoo 360 or 360 Search, whose visibility has rocketed and now claims a significant portion of the search engine market share.

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Chinese tech stocks to watch

Alibaba

Alibaba Group Holding Ltd is an online e-commerce retailer and China’s largest company by market capitalisation. The company controls more than 50% of China’s e-commerce market each year. Alibaba owns the websites of many subsectors: Taobao is the equivalent of second-hand C2C retail platform eBay, Alibaba Cloud is a cloud computing company, and Tmall is a B2C retailer for both Chinese and international businesses. Throughout the Great Recession, Alibaba managed to withstand the global stock market crash​ and revenue actually showed growth, possibly indicating that it is a stable and reliable stock for investment in times of economic hardship. Despite a drop in price at the start of 2020 due to shipment restrictions, the below chart shows that Alibaba’s share price​​ has been steadily increasing as the economy steadies.

Market cap: $593.7 billion

Share price: $266.80

JD.com

JD is Alibaba’s main competitor within China’s e-commerce and retail sector, and it is the second-largest online retailer in the country, controlling around 17% of China’s e-commerce market each year. JD invests heavily into its logistic network and development of artificial intelligence, charging third-party companies for its services in robotics and driverless delivery vehicles. It is a very similar provider to the online retailer Amazon, as a Chinese pioneer of fast delivery and a never-ending range of products. Whereas Alibaba’s market share decreased due to restrictions on deliveries, JD controls its own distribution between buyers and sellers, therefore proving more reliable in the short-term. The chart below shows that JD’s share price​ has been rising consistently for the past year without any major drops.

Market cap: $94.6 billion

Share price: $94.22

Baidu.com

Baidu Inc is the perfect example of a blue-chip stock. It is a technology and advertising company that specialises in internet services and artificial intelligence. The Baidu search engine is currently the fifth largest website in the world and the second largest search engine. As well as this, Baidu is a global leader for cloud storage services with Baidu Wangpan, smart speaker development and online mapping with Baidu Maps, an equivalent of Google Maps. The coronavirus pandemic has had a negative impact on the advertising industry in general, and Baidu’s share price took a large fall at the start of 2020. However, Chinese tech stocks are hoping that there will be a revival in internet-related services once the economy stabilises, and therefore, 2021 could be a great time to invest in Baidu's share price​​ and other similar companies.

Market cap: $42.5 billion

Share price: $259.91

NetEase

NetEase Inc is a creative Chinese technology company that is a pioneer in the video gaming industry. The company provides content and communication services for developing desktop and mobile games. NetEase has also established a joint venture with Blizzard Entertainment, a US-owned video game developing company, in order to produce local versions of some of the most popular video games around the world. These include World of Warcraft, Hearthstone and StarCraft II. The company is in the process of creating their first virtual reality multiplayer online game, which is a huge opportunity to progress China’s tech industry. NetEase owns one of the leading companies within the e-learning sector in China, a spinoff called Youdao. This has shown success throughout 2020 due to schools closing as a reaction to the pandemic. As a result, NetEase’s share price​ is at an all-time high.

Market cap: $59.7 billion

Share price: $122.36

Weibo Corp

Weibo Corporation is a social networking company that specialises in microblogging. Its main Sina Weibo service share similarities with Twitter and Instagram, however, it is focused purely on entertainment, due to China’s strict censorship laws. Social media stocks can be difficult to invest in, as there are constant developments in social networking and often, websites that were once the height of popularity can disappear in replacement of new ones. However, Weibo’s share price​ is a bargain and can jump at the release of certain news and updates, so it is better to invest in this Chinese stock now, while it is at a cheap price.

Market cap: $7.6 billion

Share price: $49.49

Tencent

Tencent Holdings Ltd is a conglomerate holding company within China’s tech industry. It is the world’s largest video game publisher and owns China’s top mobile messaging platform, WeChat. Tencent’s sudden growth could be attributed to the development of its own online payment service, WeChat Pay, which has an almost equal revenue in digital payments as Alibaba’s own service, Alipay. It also holds shares in Tencent Music Entertainment, a digital music service, and Tencent Cloud, which is the second largest cloud storage service in the country after Alibaba’s own. Although Tencent's share price experienced a slight drop at the start of the 2020, due to pressure on the advertising industry, it has since bounced back with the help of its video game stocks. Read more about Tencent stock.

Market cap: $639.1 billion

Share price: $736.25

iQIYI

Often referred to as the ‘Netflix of China’, iQIYI is one of the largest video streaming services in China. It was founded by Baidu, who currently owns a 56% stake in the company, and it is reported that Tencent are interested in purchasing a stake, which led to a surge in iQIYI’s share price​ upon news release. Given the rise of streaming stocks within recent years and especially throughout the pandemic, iQIYI is a safe option for investment. As shown in the below chart, the company experienced a plunge in stock price at the start of 2020 due to fraud allegations made against the company. However, it is rising steadily back to its previous figure, and the number of subscribers is around 105 million as of January 2021. This figure is almost double the reported figure from previous years, showing Netflix that iQIYI is a serious competitor.

Market cap: $18.5 billion

Share price: $23.36

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How to invest in Chinese stocks

The above China tech stocks are all available to trade on our Next Generation online trading platform. Traders can choose between opening a spread betting or CFD trading account, which are both derivative products that allow traders to open positions and bet on price movements of the underlying asset, rather than holding physical ownership of the assets. The stock market can be volatile, therefore it is important that you familiarise yourself with the practices, strategies and risks of stock trading. Read our article on how to trade stocks for more information on how to start investing in Chinese stocks.

China Tech share basket

Aside from spread betting and CFD trading on individual shares within the stock market, it is now possible to trade multiple assets at once with our innovative share baskets​. These are mini CFD portfolios of stocks that revolve around a specific theme, in this case, a ‘China Tech’ basket. Within this basket, the following Chinese tech companies are included:

Baidu.com Alibaba
TAL Education Group Weibo Corp
Trip.com NetEase
Autohome JD.com
iQIYI 58.com


Basket trading also helps to diversify your trading portfolio, as it is possible to offset the risk of losses of certain declining stocks with the performance of other blue-chip stocks. Read more about our China Tech share basket​​ here, along with a breakdown of each constituent weighting.


Chinese tech ETFs

An alternative method of gaining exposure to Chinese companies is through ETF trading​, where you also do not take direct ownership of the asset but instead trade on its price movements. Exchange-traded funds​ are investment funds that hold a collection of underlying assets within the share market. An index ETF is often used as a benchmark for other indices of a specific sector, such as China’s tech industry. Read more about exchange-traded funds.

Some of the top Chinese tech ETFs, in terms of index weighting, overall performance and included stocks, are the Global X MSCI China Information Technology ETF, Invesco China Technology ETF and KraneShares CSI China Internet Fund ETF. These all include a variety of the stocks featured in our China Tech share basket, including the China tech giants.

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Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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