Make no mistake: China's growth rates are staggering. And investing in China gives you the chance to own companies in what will soon be the world's largest economy.
We'll even show you a potential Chinese growth stock with 717% growth potential.
Be careful, though.
Investing in China isn't the same as investing in the United States. You'll have to be leerier of the staying power of Chinese investments.
How to Invest in China
While American investments are subject to the free market, Chinese companies are controlled by the whims of China's authoritarian leaders. Success in the market will depend on if the Chinese Communist Party values the stock as much as you do.
So start with keeping your eye on the company's role in the grand scheme of the Chinese economy. The size of the company will matter.
Smaller companies contribute only a tiny fraction of value to the Chinese economy. And they could eventually be "cleaned out" of the system, as Money Morning Capital Waves Strategist Shah Gilani points out.
Alibaba Group Holding Ltd. (NYSE: BABA), for instance, is a large market cap at $500 billion and trades on a major exchange. You're more likely to want to invest in BABA than, say, 111 Inc. (NASDAQ: YI), a $500 million market cap.
Shah says companies like Alibaba are a "reflection of the Chinese market" or "Chinese entrepreneurship." So the Chinese government, a careful manager of optics, is more likely to stand behind them if they fail.
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That's truer now than ever thanks to the coronavirus pandemic and trade war, which have stifled China's economy.
China wants the market to reflect the fact that the Chinese are getting back to business. "It means the Chinese are going to manipulate some of these big stocks up," says Shah.
That's how you should play them. Alibaba is not as elastic to broad market moves as an American company, because it's a Chinese government darling.
This is the "magic" of China's ultra-interventionist central bank. As long as the government can continue to bail out one of its prized firms, that firm will grow.
Companies as big as Alibaba, with enough reach, will still have potential as long as the world economy stays above a certain threshold of disaster.
Shah recommends the same strategy for Chinese stocks as he would for American stocks today. Stocks are cheaper. It's the buying opportunity of a lifetime.
Find a stock you like, allocate an amount of capital you want to put in, and pick a position. And it may go down further, but if that happens, simply buy more.
Here's another Chinese stock to buy cheap during the coronavirus crash.
The Chinese Stock to Buy Right Now
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Tencent Holdings Ltd. (OTCMKTS: TCEHY) is another one of China's largest companies today by market cap.
At over $450 billion, it also stands as the world's largest video game company. It's also among the largest social media and venture capital companies on the planet.
If any firm besides Alibaba is due special treatment from the Chinese government, it's Tencent. It's the eighth most valuable company in the world, and it's at a discount right now.
In 2015, Tencent bought all of Riot Games, the company behind the insanely popular League of Legends gaming franchise (over 80 million active players). It also has a minority stake in Epic Games, the company behind Fortnite (250 million players).
Tencent has partnered with the NBA to broadcast games in Shanghai. It has collaborated with The Lego Group to develop video games for children, and it's also in a strategic partnership with fast-growing Starbucks Corp. (NASDAQ: SBUKS) competitor Luckin Coffee Inc. (NASDAQ: LK).
Tencent currently has a 20% stake in another Chinese e-commere giant, JD Inc. (NASDAQ: JD).
These are some of the most premier companies in China, all held under one umbrella. And that umbrella seems to be holding on through the coronavirus crisis, losing just 4% year to date.
In fact, the stock has gained 9% since Dec. 10, when China claims to have had its first infection.
You can buy shares of Tencent for just $47.75 today. Analysts give it a low price target of $390.44 for the year. That's 717% profit potential, even in this downturn.
Action to Take: There are moneymaking opportunities in China. But it's important for you to understand the risks if you invest there. Think about how valuable the company would be to the nation as a whole. Companies like Alibaba Group Holding Ltd. (NYSE: BABA) and Tencent Holdings Ltd. (OTCMKTS: TCEHY) are staples in the Chinese economy with vast global reach. Tencent has hardly fallen in the coronavirus crash, but analysts give it 717% profit potential for the year. Again, just mind the fact that we don't know what this virus will look like if it circumvents the globe another time down the road.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.