3 Stocks to Buy if You Want Exposure to China’s Belt and Road Initiative

The Belt and Road Initiative (BRI) was first proposed by the Chinese president back in 2013. The goal of the initiative (which was originally called One Belt, One Road) was to connect China with the Eurasian countries that it once traded along the Silk Road.

Infrastructure projects, such as the construction of highways, ports, railways in those developing countries that are part of this initiative, have been the focus of the BRI so far as China looks to promote its physical connectivity with them.

As a long-term investor, one should look past the initial phase of the infrastructure construction to understand what the initiative underpins.

Promoting physical connectivity is only the beginning of encouraging the free flow of goods and the free flow of labour and services.

As such, connecting physically will naturally transition to connecting digitally. Instead of merely trading low-value goods, a Digital Silk Road is the end goal.

If you believe in the above, then you should seriously consider the following three stocks that will benefit from the initiative in the long term.

1. Tencent

Targeting overseas markets or going out of China has been one of the key strategies for Tencent Holdings Ltd (SEHK: 700) in recent years as the domestic market looks to plateau.

For the time being, the focus has been on Southeast Asia, which is one of the key markets under the initiative. For other emerging markets, Tencent is still like a baby, but one that’s born rich.

It has made numerous investments already in regions such as Western Europe, Latin America, and India, for example. These investments will act as a good base for Tencent to go overseas aggressively in the future.

Through Tencent’s investments and acquisitions, it now has a lot of intellectual property (IP) in it sname, which it could monetise from all these new markets.

Just think about all the popular game IPs that are related to Tencent (PUBG, League of Legends, Fortnite, Clash of Clans, etc.) and how much it can earn from these in the new markets.

2. Alibaba

Compared to Tencent, Alibaba Group Holding Ltd’s (NYSE: BABA) (SEHK: 9988) overseas strategy is a bit more advanced and organic.

Its payments firm Alipay is used by Chinese tourists and is present in many of the less developed countries along with the initiative already, such as Cambodia, Sri Lanka, Russia, and Kazakhstan.

In addition to its overseas investments that we are more familiar with, such as acquiring Lazada in Southeast Asia and investing in Paytm in India, Alibaba (through AliExpress) even has an e-commerce joint venture in Russia with the Russian internet giant, Mail.ru, and the Russian sovereign wealth fund.

With better connectivity (physical and digital), more Chinese tourists will venture into these less popular countries, and more businesses will be done there.

Whether it is Alibaba’s e-commerce platform or digital payments platform, both are poised to benefit from this enhanced connectivity.

3. China Tower

Nowadays, there is no digital connectivity if we are not talking about 5G or at least 4G networks.

Amid the backdrop of increasing technology adoption and internet penetration all over the world, China Tower Corp Ltd (SEHK: 788) is set to benefit from the new markets under this initiative, which don’t have the 5G infrastructure or expertise yet.

There have been security concerns all over the world regarding using Chinese telecom companies’ equipment and services. So far, the focus has been more on hardware and software providers such as Huawei and ZTE.

The concern might well include companies like China Tower in the future. But the lack of an alternative when it comes to 5G does give China a formidable position, especially in these new markets under the initiative.

Foolish takeaway

Whether you believe in the BRI or not, globalisation has been at work for decades. Despite the recent outbreak of Covid-19, globalisation and global connectivity are only set to accelerate over the long term.

Besides the apparent construction companies that are building the bridges and roads, the above three stocks are going to benefit from the massive opportunities presented by the “soft” side of this initiative in the long run.

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