The world’s most-populous nation and the second-largest economy with a booming urban middle class and buzzing entrepreneurial activity, China has come a long way ever since it began to open up and reform its economy back in 1978. Since then, GDP (gross domestic product) growth has averaged almost 10% a year, while more than 800 million people have been lifted out of poverty. With the majority of tags, labels and stickers on products and goods of all sorts sporting ‘Made in China’, the country has become known as the world’s factory. But beyond its low labour costs, its strong business ecosystem, lack of regulatory compliance, low taxes and competitive currency practices, have boosted its standout economy.
The only major economy to achieve positive growth in 2020, China’s recovery from COVID-19 has been swift so far. Thanks to the containment of the outbreak coupled with support from financial and fiscal policies and resilient exports, China recorded 2.3% real GDP growth in 2020, while according to the country’s National Bureau of Statistics, its GDP increased by a record 18.3% in the first quarter of 2021 in comparison to the same period last year.
With the economy expected to roar back to pre-pandemic levels and the Chinese stock market having been a long-standing investment opportunity for many investors, we’ve rounded up the top-performing Chinese stocks that have excelled in the past year and are expected to do so in the future.
What is the Chinese stock market called?
The Shanghai Stock Exchange (SSE) is one of the two stock exchanges operating independently in mainland China. The world’s fourth largest stock market by market capitalisation, the exchange dates back to 1891 when during the boom in mining shares, foreign businessmen founded the Shanghai Sharebrokers Association. Re-established in 1990, today it is a non-profit organisation directly administered by the China Securities Regulatory Commission (CSRC). In fact, unlike the Hong Kong Stock Exchange, the SSE is still not entirely open to foreign investors, while it is often affected by decisions of the central government due to capital account controls exercised by the Chinese mainland authorities.
The other stock exchange operating independently in mainland China is the Shenzhen Stocks Exchange. Founded in 1990, seven years later the State Council of China decided that the stock exchange would be directly managed by the CSRC. Situated in the Futian district of Shenzhen, it is the fourth largest in East Asia. In 2009, the ChiNext market was inaugurated, with many of the companies traded being subsidiaries of firms in which the Chinese government maintains controlling interest.
Both the Shanghai Stock Exchange and the Shenzhen Stock Exchange are open Monday through Friday from 9:30am to 11:30am and 1:00pm to 3:00pm China Standard Time (GMT+08:00).
Top Chinese stocks
Tencent Holdings Ltd. (700)
A sprawling conglomerate that is often dubbed China’s Berkshire Hathaway, Tencent was founded in 1998 and together with its subsidiaries it markets various Internet-related services and products for a range of sectors, such as entertainment, artificial intelligence (AI) and others. Although best-known for its WeChat product, the country’s most popular app and a necessity to many Chinese, video games are what have been generating most of Tencent’s revenue and profits. In 2018, the company surpassed a market value of $500 billion, becoming the first Asian tech company to cross this valuation mark. Since then, it has cemented its position even further, emerging as the most valuable publicly traded company in the country.
The Chinese Internet services giant reported a total annual revenue of over CN¥482 billion (about $73.9 billion), marking a 28% increase compared to the previous year. What precisely has been behind Tencent's revenue numbers? For one, the pandemic has been good to gaming companies like Tencent itself, owner of blockbuster hits like Honour of Kings and League of Legends, amongst others. As 2020 progressed, its gaming revenue climbed from 31% in Q1 to 40% in Q2 and 45% in Q3, before inching down to 29% for the fourth quarter. However, for the whole year, its gaming revenue surged 36%, compared to the measly 10% for all of 2019. And in 2021, the company managed to grow by a further 17% in the first quarter, to $6.7 billion.
As the company is in full pursuit of a so-called global gaming domination, Tencent has also ramped up its deal making, utilising its ample cash flows to invest in other high-growth technology businesses. As recently as June 30, it launched a new studio named Uncapped Games, which will be focusing on real-time strategy (RTS) games, while the aim is to tramp strong ‘90s franchises like StarCraft, Age of Empires and Command and Conquer. What’s more, by taking minority stakes in winning companies like Pinduoduo, Sea Limited and even Tesla, its equity investee portfolio is constantly growing.
To add Tencent (700) to your portfolio, head over to Moneybase Invest.
Alibaba Group Holding Limited (BABA)
Originally founded in 1999 as a B2B eCommerce portal with the aim to bring together Chinese manufacturers with overseas buyers, in 2003 the service expanded to include the C2C eCommerce marketplace Taobao, while five years later it launched Tmall, a B2C online commerce platform centred on brands and online retail. Then, in 2010, the company launched AliExpress.com, the much-loved online retail service made up of mainly small Chinese businesses offering products to international online buyers at affordable prices. Since its inception it has become the darling of China’s tech scene, breaking the $500 billion valuation mark in January 2018, just after its competitor Tencent. And as of 2020, it has the sixth-highest global brand valuation.
The year 2020 has proven to be a difficult one for the company and not due to the pandemic. On December 24, China launched an antitrust investigation into the Group’s regulators in a crackdown on the country’s booming Internet space’s anti-competitive behaviour. As a result, following the antitrust investigation by Chinese regulators, Alibaba suffered a historic stock price crash to the lowest close in around six months. In addition, thanks to the antitrust probe, Alibaba lost a substantial amount of its 2020 stock market gains, from $859 billion to $586 billion by the end of December 2020.
But putting the antitrust issues aside, it's important to remember that Alibaba’s fundamentals are strong. In the fiscal year ending March 31, 2020, the eCommerce giant recorded consolidated revenues of around CN¥717.3 billion (approximately $109 billion). Annual active consumers across its online shopping properties are constantly increasing, reaching 811 million by the end of March 2021, compared to the 779 million at the last quarter of 2020, while the company has also found ways to innovate. In June 2021, Alibaba’s Tmall Innovation Partnership helped L’Oreal create a major new cosmetic product in just 59 says, one of the fastest products they have ever managed to launch in such a short period of time.
Have you invested in the company yet? If not, it’s time to buy Alibaba (BABA) today.
Meituan (3690)
It may be an obscure firm in Europe, but Meituan is a household name in China. A shopping platform for locally-found consumer products and retail services, such as entertainment, dining, delivery and travel, amongst others, the company which is headquartered in Beijing was founded in 2010. Initially it was piloted in Shanghai and Beijing, however, it rapidly expanded to second-tier and third-tier cities, amassing a total of 200 million users by 2015. Operating several different apps and websites, its Meituan website in particular offers deals of the day by selling vouchers for local services and entertainment, while it boasts partnership agreements with over 400,000 local businesses.
Yet, despite the thousands of voucher-selling entities that have mushroomed most especially since the mid-2000s, just a handful have managed to make it through. Amongst them, Meituan which by 2014 it accounted for 60% of the country’s deal-of-the-day group-buying websites market share and today it has quickly become the third most valuable company behind Tencent and Alibaba.
The company has made an impressive recovery from the effects of COVID-19, with its stock having more than quadrupled in the past year, surging to an all-time high in February 11, 2021 to close at HK$445 ($57.28). And while in May 2021, increased regulatory scrutiny led to almost $40 billion being wiped from the company's overall value, Meituan managed to forge ahead. Its EPS shot from CN¥0.39 to CN¥0.81 ($0.058 to $0.121), over the last year, marking a 107% year-on-year growth.
It has also hinted at bigger things to come. The delivery giant raised $9.98 billion from a record top-up placement and a convertible bonds sale as it doubles down on efforts to fight off competitors in niche areas such as online groceries. In addition, it has sold 187 million shares in a top-up placement at HK$273.80 ($35.25) each, near the top end of its marketed range, while it also raised $400 million from shareholder Tencent according to Bloomberg News. And based on reports, the $7 billion new stock issuance is the largest-ever such sale by a Hong Kong-listed company.
Interested to invest? Head over to Moneybase Invest to add Meituan (3690) to your portfolio.
Ping An Insurance (2318)
A Chinese holding conglomerate, Ping An Insurance provides products and services through its five ecosystems, namely financial services, healthcare, auto services, real estate services, as well as Smart City solutions. On the other hand, the Group’s insurance business writes property, casualty and life insurance products. Consistently ranking as the world’s top global insurance brand, as of 2020, it was the most valuable global financial brand in the world, topping both the Forbes Global 2000 list and the Fortune Global 500 one.
For investors looking for exposure to the financial services sector, Ping An may not be a name that typically crops up, however, the company has much going on for it. Indeed, the Chinese titan is not just about insurance and finance, but it is also known to be quite savvy with apps, while its cross-selling success has led to strong customer growth. Indeed, more than 598 million users are connected to at least one of its ecosystems mentioned above, while approximately 1% of its revenues goes into its R&D (Research and Development), particularly in areas like new AI technologies, blockchain and cloud computing. And over the years it has managed to launch a series of successful fintech and healthtech businesses like OneConnect, Ping An Good Doctor and Ping An HealthKonnect, amongst others.
Its solid business model has helped it become a profitable entity even in the wake of the COVID-19 pandemic. The company announced a 20.6% operating margin and free cash flow of HK$403.69 billion ($52.08 billion), while 2020 revenue stood at CN¥1.321 trillion ($197 billionBn). Meanwhile, shareholders have been able to tap into this profitability. Despite the short-term adverse impact on economic growth, Ping An continued to reward its shareholders, with the annual cash dividend per share for 2020 growing by 7.3% year-on-year to CN¥2.20 ($0.3288).
Add Ping An Insurance (2318) to your portfolio.
Xiaomi (1810)
From its smartphones, laptops and smart TVs to its AI speakers, routers and wide range of IoT and other hardware and lifestyle products, Xiaomi has managed to build a name of itself and to become the fourth company globally after Apple (AAPL), Samsung (SMSN) and Huawei to have self-developed mobile system-on-chip (SoC) capabilities. Headquartered in Beijing and founded in 2010, the company provides hardware, software and internet services in Mainland China, India, Europe and in other places across the world. Following the release of its first smartphone in August 2011, the company rapidly gained market share in China to become the country’s largest smartphone company by 2014, while by the second quarter of 2018, Xiaomi was the world’s fourth-largest smartphone manufacturer.
In January 2021, the Trump administration added Xiaomi to a blacklist of alleged Chinese military companies, a move that meant that the company was subject to a previously made executive order restricting American investors from buying shares or related securities of any companies designated as such. As a result, its Hong-Kong listed shares tumbled 10.6%. However, by March, a U.S. judge granted Xiaomi a preliminary injunction against the order, pushing the stock to surge by 10%. The same month, the company released its revenue for 2020, announcing a stellar performance across all business segments. Total revenue for the year amounted to CN¥245.9 billion ($36.75 billion), representing an increase of 19.4% year-over-year, while adjusted net profit for the year was CN¥13.0 billion ($1.94 billion), an increase of 12.8% year-over-year, which exceeded market expectations. As for its stock, throughout much of 2020 and 2021, it has been on an upward trajectory, starting off 2020 trading at around HK$10.90 ($1.40), but reaching an all-time high at the end of the year, December 31, at HK$33.20 ($4.27).
And there’s more. Xiaomi recently announced its plans to make electric vehicles using Great Wall Motor Co Ltd.'s factory, making it the latest tech firm to join the smart mobility race. The company will aim its EVs at the mass market, in line with the broader positioning of its electronics products. A hardly surprising move as more and more Chinese firms are running to jump on the bandwagon of the electric vehicle (EV) trend, opportunities in the industry abound and Xiaomi is well positioned to tap into them.
How to invest in Chinese stocks?
Ready to buy a share of these top Chinese stocks? Your first step to tapping into a world of investment opportunities with Moneybase Invest is to sign up and open an account.
- Download the app from either Google Play or the Apple App Store. Alternatively, you may access Moneybase Invest on your desktop by visiting https://live.cctrader.com/
- Once you’ve onboarded successfully and have funded your account, head over to the search bar at the top of your screen and input either the company name or ticker symbol.
- Select the instrument of your choice from the list and then click on the Buy button on the window located at the bottom of your screen.
- On the New Order page, input the number of shares you would like to purchase and hit the Place Buy Order. The stock has been added to your portfolio.
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