Alibaba, Tencent & Xiaomi: Are Their Stocks The Best Ways To Invest In The Chinese Market?

A look at Chinese tech darlings, how you can invest in them and the other options available for investors to put their money behind the second largest economy in the world. 

Everyone knows the tech darlings of the US markets, such as Amazon, Tesla, Facebook and more. Similarly, Chinese stocks such as Alibaba, Tencent and Xiaomi are also well-known stocks in the tech space vying for investors’ attention. 

Here’s a look at three of the hottest chinese stocks around, how you can invest in them and other options available for investors looking to put their money behind the Chinese economy. 

Get to know your hot Chinese stocks: Alibaba, Tencent & Xiaomi

The Chinese economy is one that’s difficult to ignore, being the second largest economy in the world.

But there are also risks involved when investing in Chinese stocks, such as impact of the Chinese government's crackdown.

Just few months ago, the cybersecurity review of the then-newly-listed Didi Chuxing led to negative sentiments surrounding US-listed Chinese stocks. And now, Didi has announced plans to delist from the New York Stock Exchange.

Alibaba Group (NYSE: BABA; HKG: 9988)

The company behind Taobao, AliExpress, FRESHIPPO and the Tmall marketplace, Alibaba is one of the world’s largest retailers and e-commerce companies. You can even think of it as the Amazon of China.

Closer to home, Singapore company Lazada is also a subsidiary of Alibaba Group. Alibaba continues to grow strength to strength despite the COVID-19 pandemic, with Singles’ Day last November setting a record US$74 billion in sales.

Listed on both the US and Hong Kong markets, Alibaba currently trades at US$205 on the US exchange. This is down from highs of more than US$300 in October 2020.

Unfortunately for investors looking for passive income, Alibaba does not pay investors dividends just yet.

Tencent Holdings (HKG: 0700)

Tencent, a competitor to Alibaba, is the company behind Wechat (Weixin) and Tencent QQ — messaging platforms that are used by more than two-thirds of people in China. 

Beyond these messaging platforms, Tencent also has business in social media apps, online video gaming, fintech, advertising and more. It also invests in other high-growth companies. Barely halfway through 2021, Tencent has already invested in 62 video gaming start-ups — double the entire 2020.

Tencent currently trades at HK$538, down from highs of more than HK$700 in January and February 2021. Last year, Tencent paid out HK$1.2 per share in dividends for investors, equivalent to less than a 0.2% yield.

Xiaomi Corp (HKG: 1810)

Best known for their smartphones and portable power banks, Xiaomi is a strong smartphone player in Asia, beating Huawei to become the top Chinese smartphone vendor globally. In Q3 2020, Xiaomi also surpassed Apple as the world’s third-largest smartphone maker. Xiaomi is also increasingly gaining traction for their other smart devices such as smart watches, smart speakers, air purifiers and more.

Xiaomi currently trades at HK$26.70. Like Alibaba, Xiaomi does not pay out dividends. 

To invest in any of the three stocks above, you can purchase the stock directly with a brokerage account. Do keep in mind that your brokerage account has to provide you with access to the market the stock is listed on. 

Other ways to invest in Alibaba, Tencent & Xiaomi

Purchasing an individual stock comes with a degree of risk. It doesn’t offer diversification unlike exchange traded funds, unit trusts or robo-advisors. These options offer a reduction in your concentration risk while allowing you to still enjoy the explore to these top Chinese companies:

#1 Exchange Traded Funds

Exchange traded funds (ETFs) are essentially a basket of securities — such as stocks, bonds or commodities — that are listed on a stock exchange. They seek to track the performance of an index, such as the S&P 500 Index or the Straits Times Index (STI). Much like how a stock is traded, ETFs are listed on the stock exchange, which means that they can be bought and sold on the open market. 

Besides offering diversification within an asset class, ETFs can also span different industries and geographies, thereby offering investors greater diversification.

Here are three ETFs that contain these popular Chinese stocks. 

Lion-OCBC Securities Hang Seng TECH ETF (SGX: HST)

• Top holdings include: Sunny Optical Technology, Alibaba, Tencent, Meituan Dianping, JD.com, Xiaomi, Lenovo and more
• Expense ratio: Capped at 0.68% p.a. for two years from the inception of the Fund

The Lion-OCBC Securities Hang Seng TECH ETF has been a hot ETF in recent times, having listed only in December 2020. It aims to replicate the Hang Seng Tech ETF — an ETF that represents the 30 largest tech-themed companies listed on the Hong Kong Stock Exchange. 

Besides Alibaba, Tencent and Xiaomi, you’re also getting exposure to other tech companies such as Meituan and Lenovo, with each individual stock not having more than 8% weightage. Investors bullish on the Hang Seng Tech Index now have the opportunity to capture its growth potential by purchasing the HST on the SGX.

You can purchase this ETF with either cash and/or Supplementary Retirement Scheme (SRS) funds.

KraneShares CSI China Internet ETF (NYSE: KWEB)

• Top holdings include: Tencent, Alibaba, Meituan, Pinduoduo, Baidu, Trip.com, JD.com and more
• Expense ratio: 0.73% p.a.

KraneShares CSI China Internet ETF tracks the CSI China Overseas Internet Index, an index that measures the performance of China-based companies whose business is in the Internet, or Internet-related sectors. 

This gives investors access to Chinese internet companies listed in both the US and Hong Kong, that provide similar services to the likes of Google, Facebook, Twitter and Amazon.

SPDR S&P China ETF (NYSE: GXC)

• Top holdings include: Tencent, Alibaba, Meituan, JD.com, Ping An Insurance, Baidu, Pinduoduo and more
• Expense ratio: 0.59% p.a.

GXC aims to track the S&P China BMI Index, with Tencent and Alibaba each holding more than 12% in weightage. Other top holdings include Meituan at close to 5% weightage, JD.com, Nio and China Construction Bank Corp at around 2%. The top 10 holdings make up more than 43% of the entire ETF weightage. 

Like any stock purchase, you can similarly purchase ETFs with a brokerage account.

#2 Robo-advisors

If you prefer to take an autopilot type of approach, consider investing with a robo-advisor. There are a select few that allow you to focus exposure on a specific sector. 

Endowus Fund Smart

Endowus allows you to invest not just your cash and Supplementary Retirement Scheme (SRS) funds, but also your CPF money. Unlike most robo-advisors that invest in ETFs, Endowus invests in funds from reputable fund managers such as Dimensional Fund Advisors and PIMCO.

While their general wealth accumulation option is the go-to for many investors, you can customise your ideal investment portfolio with Endowus Fund Smart. Launched in 2020, Endowus Fund Smart allows investors to pick and choose from the funds available to create a portfolio you can call your own. 

• Minimum investment amount: S$1,000
• Fees: Flat 0.40% flat fee for any amount, for CPF or SRS money. Cash investments of up to S$200,000 will incur a 0.60% management fee (it gets cheaper when you hit larger investment amounts). 

Read the full review of Endowus here. 

Kristal.AI

For investors with a small investment amount, you enjoy zero advisory fees on your ETFs for up to US$10,000. 

From Kristal’s curated list of ETFs, you can select ETFs by geography, sectors and more. For example, you can select ETFs with Asia Pacific exposure, such as Invesco China Technology ETF, Blackrock China ETF, Hang Seng Index ETF. You can also opt to invest in the popular ETFs Kristal has identified. 

• Minimum investment amount (for China Growth Portfolio): No minimum
• Fees: Zero advisory fee on ETFs up to US$10,000 and 0.30% p.a. on incremental account value above US$10,000

OCBC RoboInvest

OCBC RoboInvest offers 34 unique portfolios that vary in investment themes and cater to different risk appetities. OCBC RoboInvest's China Growth Portfolio offers exposure to these Chinese stocks that is actively monitored and rebalanced regularly.

The China Growth portfolio is benchmarked against iShares MSCI China ETF, providing diversified exposure to Chinese equities. The portfolio currently consists of ETFs such as SPDR S&P China ETF, Invesco China Technology ETF and KraneShares CSI China Internet ETF. 

• Minimum investment amount (for China Growth Portfolio): US$100
• Fees: Flat 0.88% p.a. regardless of amount invested and portfolio chosen

While these three robo-advisors offer investors a platform to customise their portfolio, there are many other robo-advisors around that could suit your different needs. Check them out below. 

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