Are China’s stocks on sale?

Amid a countrywide regulatory push, not all industries could receive the same level of scrutiny.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

Even with the country’s strong economy, expanding middle class, blossoming industry, and tech innovations, China’s stock market posted a negative return through the first nine months of 2021, amid increased regulatory concerns, notes Fidelity’s Xiaoting Zhao, portfolio manager of Fidelity® Emerging Asia Fund (FSEAX).

Parts of the Chinese equity market, including several large, internet-focused companies, could continue to face challenges in the short term, Zhao believes, due to ongoing regulatory scrutiny and a weakening macro situation.

“Yet I continue to be bullish on the outlook of China over the medium to long run,” Zhao says. “I’m seeing some attractive stock prices in many of the new-economy segments in China following the recent market pullback, and I welcome the correction caused by short-term concerns, which I find are great times to build long-term positions.”

He believes increased regulations on China’s internet companies and concerns among China’s leaders regarding wealth distribution in the country are not anti-capitalistic and not meant to stifle entrepreneurship. The regulations, he says, are in fact beneficial for the long-term growth and stability of the whole economy.

“Some of the measures and execution of the regulation may be a bit rough in the beginning, but I believe they will improve in the medium term,” he notes.

Elsewhere, he’s seeing opportunities where, in his view, innovation continues to thrive, and regulators do not appear to be overly focused.

For example, this summer Zhao initiated a position in Li Auto, an emerging electric vehicle (EV) maker that could help the nation achieve its environmental goals. EV penetration in China is projected to grow from 11% in 2021 to more than 20% by 2025, Zhao highlights, aided by strong government support for the industry. He believes Li Auto has potential to take significant market share from traditional automakers over time, especially from Sino-foreign joint ventures, which he believes tend to be relatively slower with their decision-making and product innovation.

Zhao says he’s also added stakes in several industry-focused software firms, including Ming Yuan Cloud, which he considers a dominant provider of software for the real estate industry.

Lastly, Zhao feels that China’s leaders see the need for innovation in health care, another area where he’s increased the fund’s investments. Among the names Zhao has emphasized in recent months is leading medtech company Shenzhen Mindray Bio-Medical Electronics.

“Working with the broader research team, I’m weighing the regulatory risks while carefully and methodically seeking new opportunities in this dynamic market,” he concludes.

Securities mentioned were fund holdings as of August 31. For specific fund information, including full holdings, please click on the fund trading symbol above.

Next steps to consider



Research mutual funds


Get fund picks from Fidelity or independent experts.



Explore our fund offerings


See the range of available Fidelity Funds and learn the benefits of each asset class.



More from our portfolio managers


A collection of current insights from our portfolio managers.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print
Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Sector funds can be more volatile because of their narrow concentration in a specific industry. Growth stocks can perform differently from other types of stocks and the market as a whole and can be more volatile than other types of stocks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. • Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. • In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit, and default risks for both issuers and counterparties. • Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. • The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. • The securities of smaller, less well-known companies can be more volatile than those of larger companies. • The funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. • Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Although the companies that the fund invests in may be highly leveraged, the fund itself does not use leverage as an investment strategy. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Past performance is no guarantee of future results.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

935099.32.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.