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Why You Should Still Be Excited About Chinese Stocks

By Jeremy Bowman and Brian Withers – Sep 5, 2021 at 8:34PM

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Despite regulatory challenges, there's still enormous growth potential in the world's No. 2 economy.

The recent regulatory crackdown in China has sent investors fleeing and prices in many big-name China stocks spiraling. But China still offers more growth than any other country in the world, it has some of the most advanced tech companies around, and the regulatory risk seems fully reflected in the bargain stock prices.

In this episode of Beat and Raise, recorded on Aug. 23, Fool contributors Jeremy Bowman and Brian Withers explain why they haven't given up on China, and why things could turn around for Chinese stocks.

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Jeremy Bowman: I think China is a really interesting space, because there's just so much growth there. You're dealing with a population that's about 4 times the U.S., an economy that's been growing at roughly 7% a year, and a lot of tech companies that I think are really on par with what we think of the big tech stocks here in the U.S. On the flip side are some of the issues that have come up in the last few months, but certainly there's no shortage of news out of there.

Brian Withers: Yeah, absolutely. Just a silly question for our viewers watching. You mentioned 7% GDP growth. Is that a good number?

Bowman: Yeah, definitely. I think in the U.S. we've been more, closer to 2% or 3%. When you compare it, 7% is really better than anywhere in the developed world right now, and even most of the emerging markets we think of, whether that's in India, or Africa, or Latin America. So yeah, I think that number is forecast to slow down, but it's been a high-growth market for sure.

Withers: Absolutely. And I often talk about China being the largest e-commerce market in the world. Not only do they have a massive population, but they have a massive growing middle class as well.

Bowman: Right. Yeah. I mean, it's become a huge consumer market. I believe it's the biggest retail market right now. It's surpassed the U.S. in addition to being the biggest e-commerce market. We might traditionally think of it as more of a manufacturing powerhouse, but really, it's become similar from a consumer standpoint. You're looking at a lot of American companies like Starbucks (SBUX 3.59%) or Nike that have found huge markets over there as well.

Withers: Oh, yeah. You mentioned Starbucks. That's a huge growth avenue for them. They've been wildly successful in the Chinese market. Who would've thought premium coffee would sell in China?

Bowman: They didn't even drink coffee. [laughs]

Withers: Yeah. It was definitely a tea market, and I know they started doing that, but the coffee's caught on.

Bowman: Yeah. I don't know if that's a credit to Starbucks or what. [laughs] 

Withers: Yeah. Who knows? It's maybe a chicken-and-the-egg thing.

Jeremy Bowman owns shares of Nike and Starbucks. The Motley Fool owns shares of and recommends Nike and Starbucks. The Motley Fool recommends the following options: short October 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

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