International diversification is an important part of any well-rounded investment portfolio, as anyone with even a fundamental understanding of online stock trading theory will know. Until recently, however, most UK stock brokers charged relatively hefty fees for buying stocks listed on international stock exchanges. As a result, most investors focus on funds for their international portfolio exposure.
In many ways, funds make sense as they are the easiest way to gain diversification within international diversification. Investors also often feel less secure when it comes to picking international stocks, especially those from more unfamiliar markets.
However, in recent years, new entrants providing competition to the more established UK stock brokers have often offered a wider range of international stocks. They have also set trading fees much lower as one way to differentiate themselves and compete for market share. This has also provoked many of the bigger UK stock brokers to increase their own offerings and slash fees. As a result, for those game for a slightly more adventurous approach to online stock trading, buying individual stocks from more exotic markets now makes far more financial sense.
As most will be aware, China has in recent years gone some way towards opening its stock market to international capital. Many listed companies from mainland China also have dual listings on the Hong Kong stock exchange, which has no restrictions on foreign capital. As such, exposure to Chinese companies and the Chinese economy, which despite slowing down from the runaway growth rates of a decade ago is still growing at a much faster rate than Western economies, is now an option.
Many of the fastest growing tech companies in the world are Chinese and research firm, The Economist Intelligence Unit, has forecast that the percentage of Chinese with an annual disposable income of at least £7280 will grow to 35% by 2030, from 10% in 2016. That sounds like rich pickings! So which are the listed Chinese stocks investors should be casting their eye over?
Alibaba: China’s answer to Amazon, Alibaba is now one of the biggest companies in the world, only slightly behind Amazon itself, which recently overtook Microsoft as the world’s third largest company by market cap. It’s also a much higher margin operation than Amazon and books more profit. The company boasts earnings growth forecasts of 30% to 40% in each of the next four years and according to Baillie Gifford fund manager Ewan Markson-Brown, has greater scope for growth than Amazon, currently a favourite of fund managers.
JD.com: after Alibaba, JD.com is China’s second largest online retailer. The company also develops its own products and is a big investor in tech-centric delivery. It plans to be making most deliveries inhouse using drones and autonomous vehicles within a decade. While currently loss-making, Markson-Brown believes the market is underestimating the company’s potential. It’s expected to move into profit this year and while a riskier play, Ballie Grifford believes if it comes off, the stock has even higher growth potential than Alibaba.
Weibo: known as China’s answer to Twitter, but far better at monetising, online micro-blogging site Weibo. It has a dominant market share in China and analysts forecast compounded earnings growth of 40% to 50% over the next four years.
NetEase: China’s biggest online games developer, NetEase is a favourite of Ian Hargreaves who manages Invesco’s Asia Trust. It’s one of the Trust’s top 10 holdings and has grown cash flow at a double-digit rate every year for the past 10. While that might suggest the company’s biggest spurt has already taken place, Hargreaves believes the stock still holds plenty of further growth potential.