Fetch! The Chinese small-cap stocks to buy in the Year of the Dog

Each week, a professional investor tells us where she’d put her money. This week: Tiffany Hsiao of Matthews Asia selects three Chinese small-cap stocks with exciting potential.

February saw the onset of the Chinese New Year and the Year of the Dog. Investors will be hoping for a repeat of the Year of the Rooster, which saw the MSCI China index rise by nearly 60% in 2017. Despite that, Chinese smaller-companies equities, an area of the market held by few investors, have lagged this return. In 2017, the MSCI Chinese Small Cap index delivered nearly 25%, illustrating starkly the difference in return between large and small caps in China.

However, small-cap companies in China are at the forefront of the country's economic shift away from fixed-asset investment towards innovation, consumption and services. The amount of innovation taking place in the more entrepreneurial parts of China is breathtaking and smaller Chinese companies are tapping right into it. They tend to thrive mostly in productivity-and value-enhancing industries, such as automation, health care, e-commerce and education. The opportunities for stockpickers are vast: thereare approximately 4,300 companies domiciled in China that have a market capitalisation below $3bn, which we define as small caps.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Explore More
Tiffany Hsiao is a Portfolio Manager at Matthews Asia, and manages the firm’s China Small Companies Strategy.