Are these the best Chinese stocks to watch in 2024?

Investing in Chinese stocks comes with a unique risk to reward ratio — based on various geopolitical and socioeconomic factors — including Sino-US relations.

For context, goods trade between the two superpowers hit a record $690.6 billion, and the US trade deficit with China expanded by 8.3% to $382.9 billion in 2022. Despite the rhetoric, both countries rely on each other for economic growth.

On the other hand, disagreements between the two superpowers seem to be escalating since the advent of the Covid-19 pandemic; disputes over the origins of the disease, regulatory problems over US-listed Chinese tech stocks, a possible TikTok ban in the US, arguments over the potential BRICS reserve currency, tensions over Ukraine, Israel and Taiwan, spy balloons, various export bans, and the Aukus pact could all be create a higher risk investing environment for western traders looking at Chinese companies.

The other key risk factor relates to China’s dependence on the real estate sector, which accounts for circa 30-40% of its annual GDP. But while Chinese growth slowed in 2023, many analysts still think that the country will continue to grow faster than most western economies.

The 10 best Chinese stocks to watch

These are the 10 largest listed companies in China by market capitalisation. They are not necessarily the best investments. Past performance is not an indicator of future returns. Always do your own research.

1. Tencent
2. Kweichou Moutai
3. PetroChina
4. Agricultural Bank of China
5. Alibaba
6. Pinduoduo
7. China Mobile
8. Bank of China
9. China Construction Bank
10. China Shenhua Energy

Tencent

Tencent Holdings is the largest Chinese listed stock with a market capitalisation of $460 billion. The company is a multinational conglomerate with arguably the largest video game division in the world, Tencent Games.

It also has significant investments in various internet-related activities, including AI — and is also well-known as the owner of WeChat, a social media platform with over one billion monthly active users.

It's difficult to pigeonhole the company; but it has interests in dozens of sectors and is often regarded as an unofficial bellwether for the wider Chinese economy.

Kweichow Moutai

Kweichow Moutai is far less well known than Tencent in the west but is a mainstay in China. The company produces and distributes Maotai, which is a particular type of high-end premium baijiu, a popular Chinese liquor distilled from sorghum and rice.

Moutai in China is perhaps akin to a cross between good Scotch Whisky and French Champagne in Europe — it’s served at special occasions and is arguably seen as a status symbol. The production process is correspondingly complex, with the liquor undergoing multiple rounds of fermentation and distillation — before being aged for several years.

The company also produces several other baijiu brands, in addition to some wines. It has a market capitalisation of $280 billion, making the company by many measures the largest alcoholic beverages distributor in the world.

PetroChina

PetroChina is the oil and gas major of the Chinese stock market — similarly to BP and Shell’s positions in the FTSE 100. It handles roughly 50% of China’s domestic production of crude oil, and also 60% of its natural gas — operating across the entire value chain.

Further, it has international operations around the world, owns a massive network of petrol stations across China, and distributes gas into millions of Chinese homes and businesses. It also produces plastics, fertilisers and fibres derived from oil — but faces all the same challenges as any oil major. Accordingly, PetroChina is now investing heavily in renewable alternatives.

Agricultural Bank of China

Agricultural Bank of China — or AgBank — is one of the ‘big four’ state-owned Chinese banks, offering a complete range of banking services across the world, mostly to Chinese citizens. Services include the typical retail needs, including savings accounts, loans, credit cards, and wealth management services.

It also serves businesses, providing trade finance and loans — but has a historical focus on supporting rural Chinese development, by offering finance to agribusiness and farmers. Given the wealth gap between urban and rural China, there may be significant growth potential.

Alibaba

Often called China’s answer to Amazon, Alibaba is a famous e-commerce company which provides sales opportunities across the entire BRC, C2C and B2B spectrum. Alongside various e-commerce sites, it also offers the largest cloud computing service in China, alongside various digital media and entertainment choices. Further, Alibaba controls Cainiao, the logistics firm which provides delivery services for its e-commerce platforms.

While the company faces stiff competition and regulatory risk from the Chinese government, it remains a key player in China’s economy.

Pinduoduo

Pinduoduo is a unique social e-commerce platform which encourages a ‘group buying’ model — this allows friends and family members to team up to benefit from discounts on bulk purchases.

While the company has received typical complaints of many Chinese e-commerce platforms — counterfeits and low quality goods — the novel approach has been well received in its native country and it may continue to grow through the 2020s.

China Mobile

China Mobile is arguably the world’s largest mobile network operator by number of subscribers. It boasts 900 million accounts, providing calls, data and internet to consumers across China and Hong Kong. It also operates several important subsidiaries worldwide.

The company is often viewed as a lower risk defensive Chinese stock due to its sector and market dominance — though like any legacy company it is facing competition from several nimbler rivals.

Bank of China

The Bank of China is another of the ‘big four’ state-owned banks, and like AgBank, plays a vital role in the country’s economic system — offering accounts for deposits and savings, loans and mortgages, and investment banking.

It operates branches in more than 60 countries and is well-known as a major player in forex markets and trade finance.

China Construction Bank

China Construction Bank is another major Chinese banking institution — and again offers typical financial products to consumers and businesses. However, it has a significant focus on financing infrastructure projects like roads, bridges, and energy facilities. It also offers tailored financial solutions for construction companies and related companies.

While the growth potential is perhaps larger than at other Chinese banks, it has a correspondingly higher level of exposure to the real estate sector, which can be perceived as higher risk.

China Shenhua Energy

China Shenhua Energy is an industry behemoth — it’s the country’s largest coal producer, operating mines in key regions like Inner Mongolia and Shanxi. The business accounts for circa 50% of China’s domestic coal production, and the electricity generated from its coal-fired plants makes Shenhua Energy a significant contributor to the China’s energy mix.

The company also owns a vast railway network, alongside a seaport for coal exports as part of its ventures into international coal trading. However, to future-proof it is actively investing in renewable energy alongside clean coal technologies.

Tencent Holdings Ltd (HKG: 0700)

Like Alibaba, the technology and entertainment group’s shares have also dropped tremendously this year.

But despite being down nearly 30% year-to-date, Tencent remains the largest Hong Kong-listed Chinese firm by market capitalisation at over 3 trillion yuan.

Results-wise, the company saw its revenue slip 3% YoY to 134 billion yuan ($19.7 billion) in the second quarter (Q2) of 2022. Analysts surveyed by FactSet had expected Tencent to report a revenue of $19.9 billion.

This was Tencent's first revenue drop from on a YoY basis since going public in 2004.

Adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) fell 11% YoY 44.7 billion yuan. Free cash flow for Q2 came in at 22.5 billion yuan, up 30% YoY.

JD.com (HKG: 9618)

The second largest Chinese e-commerce group’s shares are up by nearly 10% in the last one month, thanks to better-than-expected Q2 results and the government’s latest round of fiscal stimulus.

The online retailer recorded a revenue of 267.6 billion yuan ($40.0 billion) in Q2 of 2022, an increase of 5.4% from a year ago. This surpassed analysts’ estimates of 262.31 billion yuan, based on Refinitiv's Institutional Brokers' Estimate System data.

Net product revenues increased by 2.9% during the quarter, while net service revenues increased by 21.9% from a year ago.

JD.com chief executive Sandy Xu Lei said Q2 was ‘the most challenging quarter’ since the company was listed, citing the Covid-19 pandemic as the main cause.

Xu added that the company will continue to focus on generating strong shareholder returns while maintaining its commitment to investing for the long term.

How to take your position on Chinese shares

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