India may have overtaken China as the world’s most populous country, but China is still the world’s second-largest economy after the United States — and that economy is outgrowing ours.
Between 2012 and 2022, the latest year for which complete international data is available, the U.S. gross domestic product (GDP) grew about 58%. Over that same decade, China’s GDP grew by more than 123% — more than twice as fast. With this in mind, it’s no wonder that Chinese stocks are of interest to U.S. investors.
However, investing in Chinese stocks as an American isn’t always completely straightforward — there are unique risks to consider, owing to the tense relationship between the U.S. and China, and the precarious state of Chinese financial markets.
What are China stocks?
Chinese stocks are shares of publicly traded companies from the People’s Republic of China (PRC), along with the PRC’s special administrative region of Hong Kong.
In this article, we’re mainly discussing Chinese companies whose stock is traded on major U.S. exchanges; shares that U.S. investors can buy like any other stock. Many U.S.-listed Chinese stocks are American Depositary Receipts (ADRs) — U.S. exchange-traded investment instruments that correspond to foreign company shares.
Some Chinese companies are available to non-Chinese investors by other means, like over-the-counter (OTC) markets or special brokers with foreign stock market access.
But first, let’s look at some of the top U.S. exchange-listed Chinese stocks in the last year, in terms of performance.
Top 7 Chinese stocks by one-year performance
Below is a list of the seven best-performing stocks in the last year that are listed on the NYSE, NASDAQ or AMEX exchanges, have a market capitalization of at least $1 billion and are headquartered in China or Hong Kong.
Ticker | Company | Performance (Year) |
|---|---|---|
TME | Tencent Music Entertainment Group ADR | 51.76% |
QFIN | Qifu Technology Inc. ADR | 50.53% |
GDS | GDS Holdings Limited ADR | 41.97% |
TCOM | Trip.com Group Ltd ADR | 20.40% |
HCM | HUTCHMED (China) Limited ADR | 16.11% |
TAL | TAL Education Group ADR | 13.48% |
EDU | New Oriental Education & Technology Group Inc. ADR | 11.38% |
Source: Finviz. Data is current as of Sept. 3, 2024, and is intended for informational purposes only, not for trading purposes.
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Pros and cons of buying Chinese stocks
Like any other investment, Chinese stocks come with a unique set of pros and cons to consider before buying.
Pros of investing in China stocks
Rapid growth. China is an emerging market with a faster-growing economy than ours, and its government is notorious for finding ways to give Chinese companies a leg up over foreign competitors. Many Chinese electric vehicle (EV) stocks, such as BYD (BYDDY), have claimed large portions of global market share in recent years — in part thanks to Chinese government restrictions on foreign firms such as Tesla (TSLA).
Diversification. Chinese stocks provide investment diversification to Americans by giving us exposure to a major non-U.S. economy with a different cycle of boom and bust than ours. Stock market crashes in the U.S. might not affect China, and vice versa.
Cons of investing in China stocks
Ongoing financial instability. China is currently experiencing a financial crisis reminiscent of the U.S. housing market crash of the late 2000s. In recent years, several major Chinese real estate developers and lenders, such as Evergrande and Country Garden, have faced insolvency amid a rising tide of mortgage defaults. The full extent of the damage to the Chinese economy remains to be seen.
Geopolitical risks. The U.S. and Chinese governments don’t always get along, and tensions between the two countries can cause problems for investors. A 2020 U.S. law threatened to delist dozens of Chinese companies from U.S. exchanges unless they used an auditing firm that complies with U.S. accounting laws. Its passage tanked the prices of many Chinese tech stocks. Most of the companies in question ended up complying — but there’s always the risk of something similar happening again.
How to buy China stocks
If you want to buy U.S.-listed Chinese stocks like the ones in the table above, you’ll need a brokerage account if you don’t already have one.
Some Chinese stocks that aren’t listed on major exchanges are available OTC. But it’s worth checking the volume on an OTC stock before buying, to be aware of any potential liquidity problems that may make it difficult to buy or sell at a good price.
OTC stocks — even large ones like Geely Automotive (GELYF) — may only change price a few times per day due to a lack of buyers and sellers. That can cause market orders to go through at suboptimal prices, although limit orders can control this risk.
There are also a few brokers that offer U.S. investors direct access to foreign stock exchanges, including the Hong Kong Stock Exchange. This is rare, however, and those brokers may have special requirements for investors who want to trade directly on foreign exchanges. Of the brokers NerdWallet reviews, only Interactive Brokers, Fidelity, Charles Schwab and TradeStation offer foreign stock market access.
Another possibility is to invest in Chinese exchange-traded funds (ETFs), which can offer U.S. investors exposure to dozens of Chinese stocks with a single investment.
China ETFs may be simpler to invest in than individual Chinese stocks, but it’s still important to research them before buying, just as you would research stocks. And keep in mind that Chinese ETFs may be subject to the same geopolitical and economic risks as individual Chinese stocks.
» More on broad-based funds: Check out some of the best index funds in terms of performance.
Trading options on Chinese stocks
Some traders use options to bet on stocks that experience a lot of volatility — and some Chinese stocks may fit the bill. Traders might buy call options on a Chinese stock if they think it might rise in price, or they might buy put options if they think it will fall.
However, these techniques may not be right for beginners. Give our guide to options trading a read if you're not familiar with options.
Neither the author nor editor owned positions in the aforementioned investments at the time of publication.
