Why 2025 Could Be the Year for Chinese Stocks

Chinese stocks have been out of favor with investors for the past few years. A mix of geopolitical tensions, economic slowdowns, and regulatory crackdowns led many foreign investors to pull their money from China—often redirecting it to India and other emerging markets.

But could 2025 be the year that shifts the trend? With Chinese stocks trading at deep discounts, renewed government support, and a potential reversal in foreign investment flows, there may be undervalued opportunities worth considering.

Let’s explore the case for investing in China, the risks to watch, and whether now is the right time to take another look at this massive market.

Chinese Stocks: A Value Play?

While the U.S. stock market continues to soar—driven largely by the “Magnificent Seven” tech giants—Chinese stocks have taken a beating. However, this has left many top-tier Chinese companies trading at historically low valuations.

Key Data Points on Chinese Stocks

Major Chinese stocks are trading at significant discounts relative to U.S. counterparts.
Price-to-Earnings (P/E) Ratios:

• U.S. stocks (S&P 500) – ~26x earnings
• Chinese stocks (average P/E) – ~11-15x earnings (with many even lower)

Some of China’s biggest companies are down 50% or more from their highs—despite maintaining strong balance sheets, revenues, profitability and offer solid dividend payouts, making them attractive even in uncertain times.

Furthermore, further government stimulus is expected, with the National People’s Congress meeting in March and likely announcing new policies to boost growth.

If you are interested in the reasons behind the recently high valuations of US stocks, see our analysis of investing in Artificial Intelligence (AI), and whether it represents a bubble or not?

Much of the downward pressure on Chinese stocks is due to overseas investors pricing in the risks associated with the increasingly authoritarian trajectory of the Chinese government coupled with increasing international geopolitical tensions with the West.

There are fears of a Chinese invasion of the breakaway autonomous island of Taiwan, home to the world’s number one chipmaker: Taiwan Semiconductor Manufacturing Company or TSMC. This threat has too put a downward pressure on its valuation.

If you are interested in learning more this opportunity for value investors, we recommend you see our analysis on Semiconductor Giant TSMC: Is It Still A Buy?

Four Chinese Stocks to Watch

Despite these perceived risks, there exist opportunities for investors looking for deep value plays, here are four major Chinese stocks that could present interesting opportunities:

1. Baidu (BIDU) – The “Google of China”

• What it does: China’s leading search engine and AI company
• P/E Ratio: ~11x earnings
• Why it’s interesting: Baidu is heavily investing in AI and cloud computing, similar to how Google has expanded beyond search. The market is extremely optimistic about the potential of AI services and infrastructure, and so this may drive up the valuation of the firm in the coming year. 
• Valuation: Trades at a 47% discount based on fair value estimates.

2. Tencent (TCEHY) – The Social Media & Gaming Giant

• What it does: Owns WeChat, China’s dominant social app, along with gaming and cloud services.
• P/E Ratio: ~20x earnings
• Why it’s interesting: Tencent’s super app ecosystem is like a mix of Facebook, WhatsApp, PayPal, and e-commerce—combined into one.
• Valuation: Estimated to be 41% undervalued.

3. Yum China (YUMC) – Fast Food & Consumer Growth

• What it does: Operates KFC, Pizza Hut, and Taco Bell across China.
• Why it’s interesting: Massive expansion potential, plus a strong logistics and real estate portfolio.
• Potential Risks: Some exposure to China’s real estate market, but overall a well-run company.

4. JD.com (JD) – The “Amazon of China”

• What it does: E-commerce giant with a massive logistics network.
• P/E Ratio: ~20x earnings
• Why it’s interesting: JD.com owns its supply chain, making it more resilient than competitors like Alibaba.
• Valuation: Trades at a 30% discount relative to fair value estimates.

If you are would like to further assess the risk and opportunities for Chinese stocks in the context of global market trends, we recommend you see our recap of the Market Highlights 2024 and Outlook 2025: Top Sectors, Stocks, and Surprises.

Why Now? The Case for a Chinese Stock Rebound

Despite all the negative sentiment, there are strong reasons why China could bounce back in 2025:

1. Foreign Investors May Return

Many investors moved from China to India in recent years, but that trend could start reversing as:

• Chinese stock valuations look more attractive than Indian stocks.
• India’s stock market has become more expensive, with P/E ratios around 24x earnings—nearly as high as the U.S.
• China’s government may introduce incentives to lure back investors.

2. Government Stimulus is Coming

On March 5th, China’s National People’s Congress will discuss economic policies, with expected stimulus packages that could include:

• Lower interest rates
• Increased government spending
• Support for key industries (AI, technology, manufacturing, consumer growth)

3. Market Cycles Favor a Rebound

Historically, when foreign capital exits a market, it often returns once valuations become too attractive to ignore.

• The S&P 500 is at all-time highs, making some investors nervous about U.S. stocks being overvalued.
• Meanwhile, China is still near its lows, offering a potential bargain for contrarian investors.

How to Invest in China’s Stock Market

For investors who want exposure to China but don’t want to pick individual stocks, an Exchange Traded Funds (ETFs) we offer on our online trading platforms might be a better option.

ETF to Watch:
iShares China Large Cap ETF (FXI) – Tracks China’s largest, most stable companies, offering diversified exposure.

Performance: Up 37% in early 2024, outperforming many individual Chinese stocks.
Focus: Includes dividend-paying, profitable Chinese firms with strong fundamentals.

Final Thoughts: Is Now the Time to Invest in China?

China remains a high-risk, high-reward market. The recent sell-off has created deep-value opportunities, but concerns remain around geopolitical risks, government policies, and economic uncertainties.

Why Invest?

• Cheap valuations compared to the U.S. and Indian markets.
• Upcoming government stimulus could boost growth.
• Potential rebound if foreign investors return.

Risks to Consider:

• Regulatory uncertainties.
• Slower consumer spending & unemployment concerns.
• Geopolitical tensions (U.S.-China trade relations).

China isn’t for everyone—but for long-term investors willing to take on some risk for potential high rewards, it could be a contrarian opportunity in 2025.

If you believe in value investing and mean reversion, China is one of the few major stock markets that looks cheap right now.