Should you Invest in China?

It’s no secret on Wall Street that the Chinese stock market has been frustrating for investors, to say the least. The CSI 300, the leading Chinese capitalization-weighted index, last printed fresh all-time highs precisely four years ago. Chinese equities have suffered for various reasons, including China’s population decline, sky-high youth unemployment, a real estate bubble, and government overstepping and regulation concerns. As if all that wasn’t enough, newly re-elected President Donald Trump has wasted no time hitting Chinese imports with hefty tariffs. Meanwhile, the Chinese government has retaliated, spreading investor concerns about an all-out trade war.

Despite the mounting concerns, you may be surprised when I tell you that I am very bullish on Chinese equities. Today, I will discuss the top five reasons I am bullish on China:

Chinese Equities Resilient Despite Tariff Threats

I always teach investors not to observe news in a vacuum and, instead, monitor the price action versus the news. In other words, scary headlines can be a bullish omen if price is resilient in the wake of them. This scenario is exactly what is playing out with Chinese equities and tariffs. For instance, despite the back-and-forth tariff rhetoric between the US and China, the iShares China Large Cap ETF (FXI) is up nearly 5% for the week and breaking out to multi-month highs – a sign of resilience.

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In addition, investors should remember that during Trump’s first term, tariffs were used as a negotiating tactic more than anything else.

China is a Contrarian Bet

The best investments usually go against the crowd. David Tepper, one of the greatest contrarian investors in history, has several Chinese stocks in his portfolio, including Alibaba (BABA), JD.com (JD), Baidu (BIDU), and the Kran CSI China Internet ETF (KWEB). Moreover, despite the recent uptrend in Chinese stocks, FXI’s short-interest is at multi-year highs, which could provide continued fuel for the fire.

Image Source: (@SubuTrade)

Chinese Government Wants to Stimulate Economy

Liquidity, more than anything else, drives bull markets. Recently, the People’s Bank of China (PBOC) implemented several stimulatory measures, including easing lending restrictions, cutting interest rates, and providing funds to the fledgling real estate sector.

Chinese Stocks Have Dirt Cheap Valuations

Most Chinese stocks have generationally low valuations. For instance, BABA, China’s most prominent tech stock, has a P/E Ratio of 10x, one-third of its valuation back in 2020. In addition, earnings growth is accelerating again – a lethally bullish combo.

Image Source: Zacks Investment Research

Chinese AI Technology is Catching up to US

China’s DeepSeek AI model is a game-changer for the US/China AI race. Though several analysts have debunked claims that DeepSeek was able to produce a ChatGPT-like large language model at a fraction of the cost, the success of the AI model suggests that China has caught up to the US in the cutthroat AI race, or at the very least, is not far behind. Even Apple (AAPL), America’s most-recognized tech juggernaut, has partnered with Alibaba to develop AI features for its iPhone in China.  

Bottom Line

Despite concerns surrounding China’s economy, a confluence of factors suggests a compelling bullish case for Chinese stocks. Resilient price action, contrarian sentiment, government stimulus, attractive valuations, and rapid AI advancements create immense growth potential.

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Apple Inc. (AAPL) : Free Stock Analysis Report

Baidu, Inc. (BIDU) : Free Stock Analysis Report

iShares China Large-Cap ETF (FXI): ETF Research Reports

JD.com, Inc. (JD) : Free Stock Analysis Report

Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report

KraneShares CSI China Internet ETF (KWEB): ETF Research Reports

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