China has exhibited remarkable growth over the past 45 years, transforming it into a land of superlatives. It is the world’s biggest exporter, its second-largest economy and, over the past few decades, it has undergone the fastest process of urbanisation in human history.
“No one has really been looking at China for the past few years, but actually there’s a lot of interesting things going on,” says Sharukh Malik, portfolio manager, Asian & Emerging Markets at Guinness Global Investors.
Since the late 1970s, China’s GDP growth has averaged over 9% a year, according to the World Bank, and almost 800 million people have lifted themselves out of extreme poverty. This has helped transform China into a nearly $19 trillion economy, second only to the US in terms of GDP.
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Year | MSCI China annual return |
|---|---|
2021 | -21.6% |
2022 | -21.8% |
2023 | -11.0% |
2024 | 19.7% |
2025 YTD (as of 30 October) | 39.6% |
Source: MSCI
This year’s rise has coincided with Chinese technology stocks coming into the forefront, particularly after the emergence of artificial intelligence (AI) start-up DeepSeek.
“Confidence has been building thanks to improving economic growth, targeted government stimulus, and ongoing strength in innovation-led sectors like electric vehicles (EVs) and AI,” said Kate Marshall, lead investment analyst at Hargreaves Lansdown.
So what’s the state of play with Chinese stocks – and should you invest?
The challenges and opportunities of investing in China
The investment landscape in China is changing. Wind the clock back to 2023 and sentiment was dominated by three (very negative) themes: the property market, geopolitical tension and a domestic regulatory crackdown.
“Some investors walked away,” Linda Lin, head of the China equities team at Baillie Gifford, told the Association of Investment Companies showcase on 10 October.
But on the ground, the shoots of positive change were there: government officials had already started to vocally advocate the interests of private companies, according to Lin.
“Private companies are not the side story; they are the economy,” said Lin. “They are contributing 60% of GDP, 70% of technological innovation, and 80% of urban jobs.”
Xi has previously been accused of prioritising ideology over growth, but this stance has shifted in recent months. “Over the last year we have seen Beijing take a more pragmatic turn,” said Lin. “It is now not about tolerating the [economic] headwinds, but about leaning against them.”
Besides the real estate boom and bust, another obvious cause for investor concern is the threat of tariffs from the US. While these tensions appear to be thawing, investors are often cautious about investing in China due to the prospect of trade barriers with the world’s (other) largest market.
But despite its size, the US only accounts for around 14% of Chinese exports, and these US exports in total account for less than 3% of China’s GDP. So even a major disruption of the trading status between the two countries wouldn’t necessarily throw China’s economy completely off-course.
China is the top trading partner for more than 140 countries worldwide, and has overtaken the US on this metric.
“America’s share of world GDP is falling,” says Malik. “The emerging world is becoming a bigger part of the pie, and that’s where China’s future is.”
China’s shift up the value chain
Perhaps the most significant structural opportunity within China is its emerging position as the world leader in high end technology products – which both Lin and Malik characterise as a move up the value chain.
It is particularly evident in the country’s growing dominance in advanced technologies, such as electric vehicles (EVs) and solar panels.
China manufactures 70% of global EVs and 75% of the global battery market, according to the IEA, and in 2024 built more industrial robots than the rest of the world combined.
Lin said this is driven by three layers: a top-down industrial policy with a focus on strategic areas like AI and semiconductors; a bottom-up layer of innovation driven by Chinese entrepreneurs; and the scale of the Chinese market, which Lin said “helps product innovation and increases adoption much faster than people think”.
“The [Chinese] government is playing a huge part in rolling out data centres so more businesses have it open to their operations,” says Malik.
Malik envisages that the additional growth from these new pillar industries will outweigh the drag from real estate, and that this inflection point will occur either in 2026 or 2027. That could lead to “10 or 20 years of solid growth” in China, he says. And industrials – hugely overlooked at present – ought to be able to ride this wave, without exposing portfolios to the risky valuations at which Chinese AI sometimes carry.
How to invest in China
You are probably under-exposed to China in your investments. Most of the world is: the country accounts for 18% of global GDP, but just 3% of the MSCI All World Index – less than Apple, as Lin points out.
Buying Chinese stocks directly can be complex and will depend on your broker. In general, American depositary shares (ADS) or receipts (ADR) are easier for UK-based retail investors to access, but some brokers will offer access to Hong Kong-listed shares.
Some stocks that could offer exposure to the technology growth trends in China are robotics company Midea (HK:0300), battery producer CATL (HK:3750) or BYD (HK:1211), which this year overtook Tesla as the world’s largest seller of EVs.
Malik favours investing in industrials, a part of the market that has “mostly been ignored by investors because they’re just chasing AI”.
In his view, a risk-averse investing approach can be advisable when looking at Chinese stocks. “In China, the competition is just so intense,” he says. “Something that did very well last year, a million companies could flood into the sector and wipe away the advantage.”
He added: “It’s risky in China to make big bets on bad companies becoming good companies… Our broad style is to find companies which have already done okay in the past, have already got a good track record, and look for opportunities where that excellence is being undervalued by the market.”
Funds and investment trusts can be another way to gain access to Chinese stocks, including mainland-listed companies that can be harder for individual investors to access otherwise.
Guinness’s Greater China Fund and China A Share Fund both follow an equal-weighting strategy, meaning they rebalance their portfolios to ensure that all holdings have a roughly equal allocation within the fund. “When something becomes too big, you lock in the gains and bring it back to neutral,” says Malik.
Baillie Gifford’s China Growth Trust (LON:BGCG), meanwhile, has a stronger focus on buying growth stocks and letting these run. Top holdings as of 30 September are Tencent (HK:0700) at 13.4% of the portfolio, TikTok owner ByteDance at 8.8%, Alibaba (HK:9988) at 7.7% and CATL at 3.6%.
Alternatively, investors could select a pan-Asian fund that offers some geographical diversification.
Schroder Asian Alpha Plus offers China exposure as well as some diversification across Asia. “Investors looking for exposure to China without the volatility of a single country fund could consider a broader Asian fund,” says Marshall. “The Schroder Asian Alpha Plus fund invests in countries across Asia. Over half the fund currently invests in China, Taiwan and Hong Kong. It also invests in other emerging markets such as India and Vietnam.”
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