China Stocks Are Making a Comeback – Is There More Upside Ahead?

Key Points

• Some tailwinds are building up in Chinese stocks, both fundamentally and technically, which could attract new investors.
• Alibaba, one of the nation's biggest technology names, has garnered enough upside and optimism to push the narrative in China.
• Other names and alternatives could give investors a chance to still get in the upside potential.

There are times when markets are driven by fear, keeping most investors away from what could be a life-changing trade or investment only because the rest of the media and sentiment decided to stay away from it. Today, that seems to be the case for stocks in China. There are several fundamental reasons to choose discounted quality stocks in this country, yet most of the market chooses to wait until it’s too late.

One example could be the iShares MSCI China ETF NASDAQ: MCHI and how it has underperformed the NASDAQ 100 index, representing the United States technology sector. This is despite some of the basic fundamentals making more sense than ever before, something investors will realize in just a bit. This ETF, as bullish as its background is, doesn’t compare to the potential upside that could be had in other individual names.

Alibaba Group NYSE: BABA represents not only the technology sector in Asia’s powerhouse but also consumer trends that could see a spike as the government’s stimulus measure starts to trickle down to the rest of the economy. Building on this same trend, there are a couple of other worthy mentions that investors can pay attention to in this recent breakout for Chinese stocks, with no end in sight.

A New Breakout in Alibaba Stock: Only the Start

This won’t be the first or last time investors notice a shift in sentiment for an entire country’s stock market. Whenever this happens, the so-called “Blue chip” stocks get the first round of attention—and capital—when sentiment changes, which is where Alibaba stock comes into play.

Short-term sighted analysts will look at Alibaba stock’s recent price action and take it as bullish, especially as it has reached up to 94% of its 52-week high. However, this view expands when they realize that the stock has traded within the same ranges since 2021, and that is why that matters.

Over the past few years, Alibaba’s management has been buying back stock in bulk, giving markets and investors a significant sign of confidence in the company’s fair value and potential future. In fact, the most recent buyback program has been approved for up to $25 billion worth of stock.

With this in mind, it shouldn’t be a surprise to see Wall Street analysts, especially those from Benchmark, land on optimistic outlooks for Alibaba stock. As of February 2025, these analysts decided to keep their Buy ratings and place a valuation target of up to $190 on Alibaba.

This view would imply not only a new 52-week high for the stock but also a net upside of as much as 39% from its current price.

A Hidden Gem in Tencent Stock

Just like the United States has WhatsApp from Meta Platforms Inc. NASDAQ: META, China counts on WeChat from Tencent Holdings Limited OTCMKTS: TCEHY. This factor alone makes it one of the country’s most important blue-chip stocks, as an entire infrastructure depends on its systems.

This is one of those stocks that Wall Street has forgotten, hence the lack of clarity in price targets and ratings today. However, there is one sign investors can take as a proxy for sentiment toward Tencent stock today.

This one comes through short seller views, which are clearly ones of capitulation, as Tencent’s short interest declined by 9.6% over the past month alone. The same theme of short sellers giving up on their views can be seen through the KraneShares CSI China Internet ETF NYSE: KWEB since this index’s short interest has also declined.

Over the past month alone, up to 9.5% of the ETF’s short interest declined as short sellers realized that too many bullish fundamental tailwinds were blowing in the back of this sector in China. This speaks much more than what Wall Street analysts could say about Tencent or any other Chinese technology stock.

When it comes to fundamentals, the iShares China ETF has one thing over every other market: the dividend yield of 2.0% today, compared to the Chinese ten-year bond yields, which stand at a lower rate of 1.8% today.

If this were the case in any other country, an ETF offering a better yield than the government’s 10-year yields would trigger an equity buying spree. This means that fear is driving Chinese markets, and that is exactly where informed investors should be the most active.