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Is it a good idea to invest in Chinese technology stocks?

February 18, 2025

Is it a good idea to invest in Chinese technology stocks?

Yes. The #1 rule of investing is diversification. It's not a bad idea at all to consider investing a little (e.g. 2% - 5%) of your portfolio in the Chinese technology sector. It has done relatively well in the past 20 years and it can be expected to remain relatively strong in the next 20 years. It could prove to be a good hedge in the long run.

China is the second largest economy in the world after the United States. China also has the most billionaires in the world after the United States. Most Chinese billionaires come from the technology sector. 

Creatix recommends getting exposure to the Chinese technology stocks indirectly via an exchange traded fund. Our recommendation is to consider buying some shares of the iShares MSCI China Multisector Tech ETF (Ticker TCHI). 

The TCHI ETF is designed to track the performance of large and mid-cap Chinese companies leading in technological innovation. It offers exposure to firms across various tech-related industries, including e-commerce, streaming, and automation. The ETF was opened on January 25, 2022. It has an expense ratio of 0.59%. Net assets so far are approximately $8.33 million. 

As of February 18, 2025, TCHI is trading at $20.89 per share. The year-to-date (YTD) return stands at 16.00%.  Over the past six months, the ETF has returned 32%. Over the last 12 months, return stands at 9.08%. The annualized return since inception is negative (-8.02%). Although we do not expect that the next semester will be as strong as the past one, we think that the TCHI ETF should produce moderate gains over the long run and also serve as a potential hedge against a potential downturn in U.S. stocks.  n

TCHI seeks to replicate the investment results of the MSCI China Technology Sub-Industries Select Capped Index, focusing on companies poised to benefit from technological advancements and innovation within China. 

Sector allocation for TCHI is as follows: 

  • Technology: 40%
  • Communication Services: 23%
  • Consumer Cyclical: 21%
  • Industrials: 8%
  • Consumer Defensive: 5%
  • Other: 3%

The TCHI ETF holds 155 Chinese companies. Top holdings include prominent Chinese technology companies:

  1. Xiaomi Corporation: 5.29%
  2. NetEase, Inc.: 4.91%
  3. Alibaba Group Holding Limited: 4.65%
  4. Lenovo Group Limited: 4.34%
  5. Baidu, Inc.: 4.08%

The top five holdings above constitute approximately 23% of the ETF's total assets. 

Below are profiles of the top 10 holdings in the TCHI ETF:

1. Xiaomi Corporation (HKEX: 1810). Founded in 2010, Xiaomi is a consumer electronics and smart manufacturing company, renowned for its smartphones, smart hardware, and Internet of Things (IoT) platform.

2. NetEase, Inc. (HKEX: 9999). Established in 1997, NetEase is a leading internet technology company providing online services centered on content, community, communications, and commerce.

3. Alibaba Group Holding Limited (HKEX: 9988): Founded in 1999, Alibaba is a multinational conglomerate specializing in e-commerce, retail, internet, and technology, operating various online marketplaces and cloud computing services.

4. Lenovo Group Limited (HKEX: 0992): Established in 1984, Lenovo is a global technology company producing a wide range of products, including personal computers, smartphones, tablets, and data center solutions.

5. Tencent Holdings Limited (HKEX: 0700): Founded in 1998, Tencent is a multinational conglomerate holding company, known for its various internet-related services and products, entertainment, artificial intelligence, and technology both in China and globally.

6. JD.com, Inc. (HKEX: 9618): Launched in 1998, JD.com is one of China's largest e-commerce companies, providing direct online sales of electronics and home appliances, and operating an extensive logistics network.

7. Baidu, Inc. (HKEX: 9888): Founded in 2000, Baidu is a leading Chinese-language internet search provider, offering a range of products and services, including a popular search engine and artificial intelligence solutions.

8. PDD Holdings Inc. (NASDAQ: PDD): Established in 2015, PDD Holdings operates Pinduoduo, an innovative e-commerce platform that connects millions of agricultural producers with consumers across China.

9. Kuaishou Technology (HKEX: 1024): Founded in 2011, Kuaishou is a leading content community and social platform, enabling users to create and share short videos and live-streaming content.

10. Contemporary Amperex Technology Co., Limited (SHE: 300750): Established in 2011, this company is a global leader in the development and manufacturing of lithium-ion batteries, supplying products for electric vehicles and energy storage systems.  

Collectively, the 10 holdings above constitute approximately 40% of TCHI's total assets, reflecting the ETF's focus on key players in China's technology and innovation sectors. These companies can be expected to continue doing well in China and in the developing world for decades to come. 

Be aware of the inherent risks associated with investing in Chinese stocks including geopolitical risks, tariffs, regulatory changes, market volatility, questionable transparency, government involvement, and currency fluctuations. It's essential to assess how our recommendation aligns with your risk tolerance and investment goals. If you are looking to diversify and are willing to consider investing in Chinese stocks, we cannot think of a better ETF than the TCHI. We added it to our radar today and have an open order to get into it when it goes down to $18 from its current $20.89 price. 

Now you know it. 

www.creatix.one

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