The Best Chinese Stocks to Buy

The recent IPO of Chinese chipmaker CXMT—which closed 466% higher than its offering price—garnered global attention and puts a renewed focus on the potential in Chinese equities.

The Chinese economy continues to make a halting recovery from the economic slump of the past few years. So far this year, the Morningstar US Total Market Index is up 9.78%, while the Morningstar China All Cap Target Market Exposure Index is down 9.34%.

Morningstar analysts see the Chinese market as featuring relatively attractive valuations led by consumer names, as well as biotech, banks, and internet companies. “Of our China/Hong Kong coverage, 78%, inclusive of dual listings, are now in 4- or 5-star territory, up from 62% in the first quarter,” notes Morningstar director Lorraine Tan.

What Are the Best Chinese Stocks to Buy?

To come up with our list of the best Chinese stocks to buy now, we screened for:

• Chinese companies whose stocks trade on a US exchange.
• Chinese companies that earn wide 
  Morningstar Economic Moat Ratings
  . We think companies with wide economic moats should remain competitive for 20 years or more.
• China stocks that are undervalued, as measured by our price/fair value metric.

3 Best China Stocks to Buy Now

These wide-moat Chinese companies were the most undervalued according to our data as of July 27, 2026.

1. Alibaba Group BABA
2. Tencent Holdings TCEHY
3. Yum China YUMC

Here’s a little more about each of the best AI stocks to buy, including commentary from the Morningstar analyst who covers the stock. All data is as of July 27.

Alibaba Group

• Price/Fair Value: 0.48
• Morningstar Uncertainty Rating: High
• Morningstar Capital Allocation Rating: Standard
• Industry: Internet Retail

Our list of the best Chinese stocks to buy now starts with Alibaba, the world’s largest online and mobile commerce company as measured by gross merchandise volume. Among its many divisions, the China commerce retail division is its most valuable cash flow-generating business. Shares of Alibaba look 52% undervalued compared with our $241 fair value estimate.

Alibaba is losing market share to PDD and Douyin in the China e-commerce business, and we don’t see a quick fix in the near term. Alibaba’s number of annual active consumers in the China retail marketplace was surpassed by PDD in the fiscal year ended March 2021. Meanwhile, Douyin has gained share from Alibaba, especially in the beauty and apparel categories in recent years, and entered the traditional search-based e-commerce space, competing directly with Alibaba. The number of annual active consumers at Alibaba is close to the ceiling in China. Alibaba’s gross merchandise volume to China’s online retail sales of goods ratio was 62% in the year ended March 2023 at Alibaba, down from 72% in the year-ago period. We believe Alibaba’s marketplace monetization rates will decline in the long run, due to a mix shift toward Taobao, which has a lower take rate compared with Tmall, and more competition.

In our view, the Taobao and Tmall marketplaces remain as Alibaba’s core cash flow driver and can support the expansion of AliCloud as well as the firm’s globalization strategy, which offers long-term growth potential. While AliCloud will remain in investment mode in the medium term, downsizing low-margin businesses can drive segment margins higher over time. On globalization, the Alibaba international digital commerce group’s year-on-year revenue growth has been strong recently, thanks to AliExpress’ expanding cross-border business.

We expect Alibaba to return more capital to shareholders and increase its return on invested capital after divestments of noncore investments. We are pleased that Alibaba has upsized its share-repurchase program by USD 25.0 billion until March-end 2027 to USD 35.3 billion. Management targets to lift ROIC (based on Alibaba’s calculation) from single digits in fiscal 2023 to double digits in the next few years. Alibaba had sizable cash and equivalents and investments of CNY 829 billion on its balance sheet as of December 2023.

Read more about Alibaba here.

Tencent Holdings

• Price/Fair Value: 0.56
• Morningstar Uncertainty Rating: High
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Internet Content and Information

Tencent looks 44% undervalued compared with our $102 fair value estimate. The company holds a prominent position in China’s internet sector, with a diverse portfolio of products and services used daily by a significant portion of the population.

Over the past decade, Tencent has ridden the mobile gaming boom with hits like Honor of Kings and Peacekeeper Elite. Gaming remains its primary monetization engine, contributing an estimated 60% of operating income. With deep insight into gamer behavior and substantial financial resources, Tencent is well-positioned to keep developing high‑quality, durable franchises.

At the same time, Tencent has built a broad ecosystem across advertising, payments, cloud, music streaming, and more. The largest untapped lever sits inside WeChat. As China’s dominant super‑app, WeChat is a uniquely powerful marketing channel, and we expect its monetization to rise steadily—primarily via advertising.

The drivers are straightforward: higher user engagement across Tencent’s properties expands ad inventory; thoughtful increases in ad load lift yield; and AI‑enhanced targeting, powered by WeChat’s data, improves conversion and pricing. Together, these factors support a gradual, durable ramp in WeChat‑led ad revenue.

AI represents a meaningful new growth lever for Tencent. Despite AI chip export restrictions, Tencent’s differentiated approach—allocating GPUs to internal use rather than selling compute like other hyperscalers—allows it to convert AI directly into product and efficiency gains. Because Tencent owns the use cases, it can deploy models where they drive immediate impact. Early results are visible on the advertising side, and the strategy offers greater long‑term visibility.

While games and advertising will remain Tencent’s core revenue drivers, its leading position in financial technology, cloud, and enterprise software offers long-term value creation potential. Given China’s economic scale and widespread digital adoption, Tencent is poised to benefit from these opportunities by transforming its services into substantial revenue streams.

Lastly, Tencent was historically active in external investments, but in recent years has shifted toward buybacks and internal reinvestment. Looking ahead, the low‑hanging fruit in external deals is largely gone; we expect a more selective approach and, consequently, fewer opportunities for outsize returns from strategic investments.

Read more about Tencent here.

Yum China

• Price/Fair Value: 0.58
• Morningstar Uncertainty Rating: Medium
• Capital Allocation Rating: Standard
• Industry: Restaurants

Yum China is the largest restaurant operator in China, with over 18,000 locations and USD 12 billion in systemwide sales as of 2025. It generates revenue primarily from its own restaurants and franchise fees. Shares of this affordable Chinese stock are 42% undervalued compared with our $77 per share estimate.

The Chinese restaurant sector continues to face headwinds from the real estate downturn and a lack of economic stimulus, affecting consumer spending. In this environment, we recommend that investors focus on companies that possess the scale to be more aggressive on pricing, as value-oriented players typically perform better during economic downturns. A healthy balance sheet is also crucial.

Yum China is well-positioned to gain share in the fragmented Chinese restaurant market, where chain restaurants account for only about 20% of China’s restaurant spending, versus roughly 35% globally and 60% in the US, underscoring a long runway for consolidation that should disproportionately benefit Yum China.

Despite current economic headwinds, we remain confident in the long-term growth of the quick-service restaurant segment, driven by three secular trends: 1) the increasing number of office-based workers, 2) rising disposable incomes, and 3) shrinking family sizes.

Looking ahead, we expect the company to meet its 2026-28 targets, including: 1) mid- to high-single-digit system sales compound annual growth rates, 2) double-digit CAGR in net new stores, 3) double-digit growth in free cash flow per share, and 4) returning 100% of free cash flow to shareholders.

We believe these goals are achievable by: 1) expanding into thousands of lower-tier towns that currently lack KFC, 2) broadening Pizza Hut’s footprint in cities that have KFC but not Pizza Hut, aided by the more budget- and takeout-friendly Pizza Wow format, and 3) accelerating franchise expansion, particularly in protected locations, to speed market entry.

Admittedly, some of Yum China’s nascent brands have underperformed, partly due to the macroeconomic slowdown. That said, we continue to view Lavazza as a high-quality brand with differentiated premium coffee positioning—an opportunity made more attractive by Starbucks’ recent challenges in China. With the group’s in-house supply chain lowering food costs, we expect future Lavazza growth to be profitable; the brand already achieved a 6% restaurant margin in the third quarter of 2025.

Read more about Yum China here.