When there’s blood on the streets, it’s time to buy. So said Warren Buffett, and if a 75% drop from peak to trough isn’t bloody enough for you, then I don’t know what is. That’s the drop that the Invesco Golden Dragon China ETF (
NASDAQ: PGJ) experienced in the past twelve months, and you can almost hear its investors cry for mercy.
It started with increased scrutiny from the Chinese authorities into antitrust practices by some of the biggest stocks, then record breaking fines started to add up. This was followed by fresh headwinds in the form of delisting risk, as well as rising geopolitical tensions, to the point where we were left with a thoroughly risk-off sentiment when it came to anything related to China.
But out of the blue yesterday came fresh comments from the Chinese government, who said they “would support the stock market, boost economic growth, and clear up a punishing regulatory environment.” This is exactly the kind of calming reassurance the bulls have been crying out for over the past year. The 30% plus jump seen in some of the bigger names yesterday should tell you all you need to know about the potential for some of these downtrodden stocks
to bounce back if the headwinds dissipate.
Here are three
worth keeping an eye on.
Regularly called China’s answer to Amazon (NASDAQ: AMZN), Alibaba was doing everything right up until the back end of 2020. But the 50% rally it had put in during the course of that year has been erased, and then some, since. Shares are actually below where they IPO’d in 2014, which in many ways is hard to believe.
Their most recent earnings report, released at the end of February, beat EPS expectations but was a little soft on revenue. However, Wall Street’s attention should be directed at the number of annual active users of the Alibaba Ecosystem, which increased to hit 1.3 billion for the whole of 2021. This is a staggering number and reflects the almost unlimited commercial reach Alibaba has at its fingertips, and which it should be able to convert, once the current headwinds subside. It’s also worth pointing out that management has been ramping up their buyback program, which is a sign of just how oversold they think the stock is right now,
Similar to Alibaba, shares of the $85 billion e-commerce titan have shed as much as 65% of their value from last year’s all time high. And like Alibaba, they’re also popping hard right now, up 50% from Monday through yesterday’s close.
This kind of volatility will scare a lot of investors, but there are fundamental reasons to consider getting involved. JD’s Q4 earnings came out last week and showed revenue growing 23% year on year, with EPS well ahead of the consensus. But even though the number of annual active customer accounts was up 20%, shares still fell in the aftermath. It feels like there’s just too much headline risk right now to justify a full entry, but investors should be aware of how quick JD’s shares can run in the right trading environment.
Between December 2018 and February 2021, they tacked on an eye-watering 460%. If China’s government can back up yesterday’s bullish talk with bullish action, don’t be surprised if JD takes off again.
Last up is Baidu, still one of the best known Chinese stocks and known as China’s answer to Google (NASDAQ: GOOGL). Its shares refused to yield as much ground as their two peers mentioned above, and have so far at least not fallen below their 2020 lows. Their recent earnings beat both revenue and EPS expectations, and investors should expect a rapid recovery if the antitrust and delisting concerns abate in the coming weeks.
As CFO Rong Luo summed up earlier this month, "Baidu Core achieved 21% revenue growth in 2021, with non-advertising revenues increasing by 71% from last year, which has been very encouraging. Looking ahead, we remain committed to healthy and sustainable long-term growth as Baidu continues to improve its overall operational efficiency and execution capabilities".
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