China Shares Still Hold Promise
The outlook for profit growth is strong, but the shares are cheap.


Some Chinese stocks got thumped recently when investors were spooked by actions China's government took to rein in the country's tech and tutoring companies. But the supervisory moves were no surprise to old China hands, says Winnie Chwang, comanager of Matthews China (MCHFX) and Matthews China Small Companies (MCSMX).
"Regulation in China is part and parcel of a macro-reform agenda that's ongoing," she says. "We do not think this is an effort to stifle private business entrepreneurship in China."
Foreign investors dominated the sell-off, which was concentrated in well-known tech stocks such as Alibaba Group Holdings (BABA) and Tencent Holdings (TCEHY). The more domestically focused China A-share market gained a robust 16% over the past 12 months, while the broad China market, as measured by the MSCI China Index, lost 4%.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Chwang, who manages both funds with Andrew Mattock, knows all about the A-share market. That's the focus at the Matthews China fund. The managers comb through roughly 2,200 candidates to find growing, high-quality companies of any size trading at reasonable prices. Once they've narrowed the list to about 150, they like to get a 360-degree view of a company before settling on some 35 to 45 stocks.
The bright spot of late is the managers' other fund, Matthews China Small Companies, which has a chart-topping 26% five-year annualized return. The managers follow the same investment process with the Small Companies fund as with the China fund, but they focus on firms with a market value between $1 billion and $5 billion.
Fast-growing technology and healthcare companies dominate the Chinese small-cap market, says Chwang, so close to 30% of the fund's assets are invested in those sectors. "Entrepreneurship is important to China's economic engine," she says. "These small companies contribute 60% to the country's overall gross domestic product growth."
Chwang expects Chinese stocks overall to post earnings growth of 10% to 15% over the next three to five years. And shares are relatively cheap: China stocks trade at 14 times expected earnings for the year ahead; U.S. shares trade at 22 times earnings.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.
-
Stock Market Today: Stocks Soar on China Trade Talk Hopes
Treasury Secretary Bessent said current U.S.-China trade relations are unsustainable and signaled hopes for negotiations.
By Karee Venema
-
2026 Disney Dining Plan Returns: Free Dining for Kids & Resort Benefits
Plan your 2026 Walt Disney World vacation now. Learn about the returning Disney Dining Plan, how kids aged three to nine eat free, and the exclusive benefits of staying at a Disney Resort hotel.
By Carla Ayers
-
Bond Basics: Zero-Coupon Bonds
investing These investments are attractive only to a select few. Find out if they're right for you.
By Donna LeValley
-
Bond Basics: How to Reduce the Risks
investing Bonds have risks you won't find in other types of investments. Find out how to spot risky bonds and how to avoid them.
By the editors of Kiplinger's Personal Finance
-
What's the Difference Between a Bond's Price and Value?
bonds Bonds are complex. Learning about how to trade them is as important as why to trade them.
By Donna LeValley
-
Bond Basics: U.S. Agency Bonds
investing These investments are close enough to government bonds in terms of safety, but make sure you're aware of the risks.
By Donna LeValley
-
Bond Ratings and What They Mean
investing Bond ratings measure the creditworthiness of your bond issuer. Understanding bond ratings can help you limit your risk and maximize your yield.
By Donna LeValley
-
Bond Basics: U.S. Savings Bonds
investing U.S. savings bonds are a tax-advantaged way to save for higher education.
By Donna LeValley
-
Bond Basics: Treasuries
investing Understand the different types of U.S. treasuries and how they work.
By Donna LeValley
-
Bond Basics: Ownership
investing Bonds come in a variety of forms, but they all share these basic traits.
By Donna LeValley