How To Buy China’s Dip

Between energy shortages and government crackdowns, China’s economy and stock market have been battered recently. That’s sent some investors – not least the world’s richest family – hunting for deals in the region. Here’s what they’re betting on, and what you could too.

Idea 1: Buy technology hardware

This idea comes from Clocktower Group, which reckons investors should buy Chinese hardware stocks.

Clocktower’s thinking is that the Chinese government has left hardware makers alone, even as it’s cracked down on the country’s software giants. And since there’s such high demand globally for semiconductors, green tech, materials, and energy, there are several Chinese companies well placed to benefit from it.

What’s the opportunity here?

There are a few ETFs to choose from, depending on how you want to play this theme. There’s the KraneShares SSE STAR Market 50 Index ETF (ticker: KSTR, expense ratio: 0.88%) and the KraneShares CICC China 5G and Semiconductor Index ETF (ticker: KFVG, expense ratio: 0.78%). Or, to put a greener hue on these investments, you could go for the KraneShares MSCI China Clean Technology Index ETF (ticker: KGRN, expense ratio: 0.78%) or the VanEck Vectors ChinaAMC SME-ChiNext ETF (ticker: CNXT, expense ratio: 0.65%).

Idea 2: Buy underappreciated midcap stocks

This idea comes from Quent Capital, which advocates betting on certain Chinese midcap stocks that investors may be overlooking.

One example Quent highlights is Uxin, which sells used cars and isn’t dissimilar to Carvana in the US, Auto1 in Europe, or Cazoo in the UK. Quent acknowledges that traditional financial metrics for smaller companies can look all over the place, but believes the company has a good inventory system, is improving the quality of its cars, and has removed some of the risk inherent in its business model in smart ways. What’s more, used cars are in high demand – not only in China but around the world.

What’s the opportunity here?

You could, of course, buy Uxin directly. But from an ETF perspective, one way to go could be KraneShares CSI China Internet ETF (ticker: KWEB, expense ratio: 0.7%), which tracks the Chinese internet industry and related sectors.

Idea 3: Buy the dip in Chinese tech platforms

This idea – which came from Mirae Asset Global Investors – is trying to capitalize on the selloff in China’s tech giants: the firm recommends buying their shares.

Mirae says that China’s tech sector has gone from excessively optimistic to excessively pessimistic over the last year. And when that happens, it allows investors to buy in at the lower end of average values over the last five years, which skews the balance of risk-reward in their favor. Earnings growth rates will admittedly slow down in the near term, as the government drives up costs for companies like Meituan and Alibaba. But those costs can eventually be passed on to customers. And in the longer term, the prospect of a growing Chinese middle class spurring consumption is still intact.

What’s the opportunity here?

The Samsung CSI China Dragon Internet ETF (ticker: 2812, expense ratio 0.65%) is 45% invested in giants Tencent, Alibaba, and Meituan giving you exposure to those all-important tech platforms. The other 27 companies in the portfolio are the biggest global listed Chinese internet companies.

Idea 4: Pick sustainable stocks

Stewart Investors Sustainable Funds Group thinks investors ought to try to capitalize as companies shift towards more sustainable development.

One example is Vitasoy, the Hong Kong-based soy food and drink producer with the majority of its sales in China. The global dairy industry produces more greenhouse gases than shipping and aviation combined, and China’s only going to drive that higher, given that consumption’s forecasted to treble over the next 30 years. Soy-based drinks and foods, then, can help reduce the emissions impact and water use, putting Vitasoy in a promising position for the future.

What’s the opportunity here?

There aren’t any ETFs that match this specific ESG theme in China, but the Freedom 100 Emerging Markets ETF (ticker: FRDM, expense ratio: 0.49%) could be a way to play this. It screens out authoritarian emerging market regions with the belief that freer regions perform better economically. For that reason, though, it’s worth noting that this isn’t a play on China, as it includes no Chinese stocks.