Is China Investable Again? 2 Stocks Soaring as Tensions Ease

Key Points

• Icy trade relations between the United States and China are beginning to thaw.
• The exchange of rare earths and AI chips could open the door to further relaxation in a contentious trade war.
• Two stocks could lead the way as the Chinese stock market begins to move higher: JD.com and Baidu.

British rock icons Oasis began their long-awaited reunion tour this month, and it's not hard to see parallels between the Gallagher brothers, Liam and Noel, and current China and U.S. trade relations.

After a long and bitter dispute, the two sides agreed to put the past aside and negotiate for the betterment of both parties. And while we likely won’t get a world tour with Presidents Trump and Xi Jinping anytime soon, it appears the two have learned the lesson the Gallaghers sang about in their concert staple Acquiesce: “Because we neeeeeed each other."

Thawing Ice: Fading Tariff Fears and Extending Olive Branches

The TACO trade is in full effect on Wall Street as investors brush off President Trump’s tariff threats in anticipation of friendlier terms when pen finally meets paper. While some tariff-affected sectors, such as homebuilders, continue to struggle, the rally has taken major indices to new highs, led once again by the AI darlings in the tech sector.

Surging stocks aren’t limited to U.S. borders either; indices in Europe like the German DAX and the U.K.’s FTSE 100 are also setting new records this summer.

The Shanghai Composite Index still has a long way to go before making a new high, but it is showing signs of life. It closed above 3,500 last week for the first time since 2021, and tensions between Trump and Xi Jinping appear to be softening.

China has agreed to restart importing rare earths into the U.S., while NVIDIA Inc. NASDAQ: NVDA is once again selling AI chips to Chinese firms. Investing in China has always been fraught, given the government's tight grip on the economy. However, tailwinds are picking up, and large-cap Chinese stocks are starting to look enticing from a valuation perspective.

Two Stocks Rising as China and the U.S. Resume Business

Public data on Chinese firms is sparse compared to other regions, making due diligence a must before investing. The government in China can drop the hammer (and sickle) at a moment’s notice, so not only must your investment targets have strong fundamentals, but they also need to be in good standing with the ruling faction.

Here are two companies that have their proverbial ducks in a row in the Chinese stock market.

JD.com: The Amazon of China

Sure, every publicly traded e-commerce company dreams of becoming the next Amazon Inc. NASDAQ: AMZN, and none have come close to achieving this goal yet.

However, JD.com Inc. NASDAQ: JD has introduced some Amazon-like business segments this year that could open up new sources of revenue. In February, the company launched JD Food Delivery, which brings essential items like groceries and meals directly to customers’ doorsteps. JD can leverage its vast inventory to bring on-demand retail deliveries through this service as well, which can support margin growth by enhancing last-mile efficiency.

The JD Health brand continues to gain momentum through pharma partnerships with Pfizer and Innogen, and the newly launched AI Nutritionist chatbot has an impressive 91% user satisfaction rate.

JD reported Q1 earnings of RMB 301.1 billion (equivalent to $41.5 billion), representing a 15.8% year-over-year (YOY) increase from Q1 2024. Diluted EPS were RMB 3.59 ($0.50), up from RMB 2.25 in Q1 2024. Revenue from the New Businesses segment actually outpaced the growth of the JD Retail segment, at 18.1% compared to 16.3%, highlighting increased demand for these services (although they remain unprofitable at present).

Analysts have been mixed on the stock, which has a consensus Buy rating but also received three price target reductions in July. However, even with these reductions, the average price target remains $44.46, which is approximately 30% higher than the current market price.

Baidu: The Google of China 

If JD wants to be the Amazon of China, Baidu Inc. NASDAQ: BIDU seeks to be the equivalent of Alphabet Inc. NASDAQ: GOOGL. While the Search remains the company’s primary revenue driver, Baidu has expanded into the realm of AI with two ventures similar to Google's: AI Cloud and Apollo Go, an autonomous ride-hailing service.

The AI Cloud segment is becoming an important revenue source, as the company reported 42% YOY revenue growth in the division in Q1 2025, compared to 7% YOY in Baidu Core. Apollo Go is now offering rides in Dubai and Abu Dhabi, and has given more than 1.4 million rides in Q1 (up 75% YOY) and recently obtained a testing license for Hong Kong.

Despite a consensus Hold rating, the stock has risen by over 5% in the last month, and the average price target still indicates upside of more than 18%. Jefferies Financial Group lowered its price target earlier this month but still maintained a Buy rating on the stock, and the new target of $110 remains 17% above current levels.