Don’t sleep on China
This article appears courtesy of RiskHedge, LLC.
Editor’s note: Today, Chris Reilly and Stephen McBride sit down to discuss the investment opportunity everyone’s overlooking...
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Chris Reilly: Stephen, you’ve been banging the drum on China in the last few Disruption Investor issues, calling it “one of the most asymmetric opportunities—and threats—in the world today.”
I want to get into your thesis today, because let’s face it...
When most folks hear China, they dismiss it as “uninvestable”—real estate crashes, state control, trade wars...
Why are you so bullish?
Stephen McBride: You’re right. China’s been Wall Street’s punching bag for years. But narratives, like markets, shift. And nothing changes sentiment like price. Our China ETF in Disruption Investor is up 20% year-to-date, while the S&P 500’s up 6%. That’s a signal.
I met up with my friend Jawad Mian recently, author of the excellent “Stray Reflections.” He put it best:
In 2012, nobody wanted to touch America, and now everyone does. The same dynamic could happen with China. The most non-obvious or difficult trade now is accepting that China needs to be an allocation.
The US is still the beating heart of global innovation and home to the world’s best innovators.
But the crucial point is that America is no longer the only game in town when it comes to groundbreaking tech. Therein lies the big opportunity.
Chris: Let’s get into the meat—where’s China crushing it, and why should Jolt readers care?
Stephen: Five key areas, and they’re all game-changers.
First, artificial intelligence (AI). Chinese AI firm DeepSeek dropped a model that rivals ChatGPT but costs 90% less to run. It’s open-source and free, which is a big problem for US AI giants.
Second, electric vehicles (EVs) and batteries. China sold 11 million EVs last year—more than the rest of the world combined. BYD (BYDDY) is outselling Tesla (TSLA) in Europe.
Third, robotics. In 2023, China installed more industrial robots than everyone else combined.
Fourth, biotech. They’re moving from generic drugs to breakthroughs like Akeso’s lung cancer drug.
And lastly, energy. China’s the world’s top solar producer and is building nuclear reactors faster and cheaper than the US.
Chris: I know you’ve written about DeepSeek and its implications many times (readers can catch up here), but let’s talk about the EVs...
BYD (China’s version of Tesla) is making waves. Are Chinese cars really that good?
Stephen: Here in Ireland, BYDs are everywhere. The company just outsold Tesla in Europe for the first time.
The scale of BYD is hard to wrap your head around. Its largest factory in Zhengzhou, China, spans over 50 square miles—bigger than San Francisco.
Their new sedan charges 249 miles in five minutes. And don’t sleep on CATL, the battery giant that just IPO’d in Hong Kong.
It controls 40% of the EV battery market, supplying Tesla, General Motors (GM), and others. Its latest batteries can go 1,500 km on one charge—New York to New Orleans on a single trip.
Chris: Let’s touch on robotics...
Stephen: In 2023, China installed more industrial robotics than the rest of the world combined. And it wasn’t close.
China’s not winning with cheap labor anymore—it’s all about automation.
In some BYD factories, robots outnumber humans on each shift. Several Chinese firms are also building “dark factories.” These are fully automated facilities that operate without human workers, so they don’t even need lights!
Sean Maher, founder of research firm Entext, is fresh off a tour of Chinese factories. He said:
Robotic components, planetary gears, and motors [are] 50%–60% cheaper in China… Everyone will come to China for these parts. The next leg of AI in China is much more nuanced, and much more investable.
Chris: What about biotech? China’s not known for cutting-edge drugs, is it?
Stephen: 80%+ of many popular drugs like Ibuprofen are imported from China.
It pumps out cheap toys and electronics. It also dominates the manufacturing of generic “off-brand” drugs. Now, in classic China fashion, it’s moving up the value chain.
Cancer medicine Keytruda ranks among the most lucrative drugs ever sold. Since its launch a decade ago, it’s raked in more than $130 billion for US drug giant Merck & Co. (MRK).
Last September, an experimental drug did what none had done before. In late-stage trials for lung cancer, it nearly doubled the time patients lived without the disease getting worse.
The company behind those stunning results? Chinese firm Akeso.
America still leads the world in drug development, but China is catching up fast. The value of drugs licensed from China hit almost $50 billion last year, up from less than $5 billion in 2020.
Chris: Last one: energy. You said China’s all-in on power. Why does that matter?
Stephen: Energy’s the master resource—cheap power fuels everything. China’s the world’s biggest oil importer and coal burner, but it’s also the #1 producer of solar power. Did you know it installed more solar power last year than the US has in all of its history?
China is racing ahead in nuclear energy, too. It just approved plans to build 10 new nuclear units for $27 billion. Those 10 new reactors cost less than the $35 billion America paid for its two newest reactors, which took 15 years to finish.
With 58 reactors currently operating and another 28 being built, China’s nuclear fleet is on track to leapfrog America’s by 2030.
Their new small modular reactor (SMRs) and thorium molten-salt reactor (a world first) are game-changers, cheaper and faster than US builds.
Cheap energy plus robotics equals manufacturing dominance. For investors, it’s a tailwind for Chinese tech and energy firms like CATL, or solar plays.
Chris: Stephen, any final words for readers who’ve never touched Chinese stocks?
Stephen: Don’t sleep on China. It’s cheap, hated, and in an uptrend.
The risk-reward for Chinese stocks looks increasingly attractive. It feels like the early innings of a new bull market.
You don’t need to go all in... A small slice of your portfolio could capture a new bull market in innovation.
Last thing: China’s rise forces America to innovate faster, which is great for humanity. As a dad of three, I’m thrilled about that.
Chris: Thanks, Stephen. And reader, if you found this conversation valuable, you’ll love The Jolt. It’s our free letter that delivers sharp, no-nonsense insights like this straight to your inbox each week. Sign up here and stay ahead of the crowd.
This article appears courtesy of RiskHedge, LLC. RiskHedge publishes investment research and is independent of Mauldin Economics. Mauldin Economics may earn an affiliate commission from purchases you make at RiskHedge.com