The geopolitical relationship between the United States and China is volatile and complicated. But the importance of China's economy to U.S. equities is clear. Many companies rely on a healthy Chinese economy for the health of their revenue and earnings.
That's why one of the most important stories moving stock prices in the last month has been the unprecedented stimulus measures taken by the Chinese government. These measures, such as reducing the reserve requirement rate (RRR), cutting mortgage rates for existing home loans, and taking steps to shore up its stock market, are intended to boost lending and prop up the country's housing market.
It's too early to tell if these measures will have their intended effect, but in the short term, Chinese stocks are moving higher. In this special presentation, we look at seven Chinese stocks that you can consider if you want exposure to this red-hot sector. Some may be better trades than long-term investments, but if you're looking to maximize your gains, it's a sector to consider.
Quick Links
- Alibaba
- JD.com
- Baidu
- GDS Holdings
- Nio
- ZTO Express
- IShares MSCI China ETF
#1 - Alibaba (NYSE:BABA)
Alibaba Group Holding Ltd. (NYSE: BABA) stock is up 41% in the last month. That’s pushed the stock up more than 47% in 2024. The BABA stock price is still below the performance of a stock like NVIDIA Corp. (NASDAQ: NVDA), but it illustrates the excitement brewing in Chinese stocks.
Alibaba stock posted strong gains in 2020 and 2021. But since hitting an all-time high in 2021, the stock was trading near all-time lows before this latest surge.
That said, there is concern that the run-up in BABA stock is exhausted, and a pullback could be in order. The Alibaba analyst forecasts on MarketBeat have a consensus price that forecasts a 2% downside. However, on October 7, Macquarie upgraded the stock from Neutral to Buy with a $145 price target that would be a gain of more than 26% from the current price.
About Alibaba Group
Alibaba Group Holding Limited, through its subsidiaries, provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses to engage with their users and customers in the People's Republic of China and internationally. The company operates through seven segments: China Commerce, International Commerce, Local Consumer Services, Cainiao, Cloud, Digital Media and Entertainment, and Innovation Initiatives and Others.
Read More - Current Price
- $117.52
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $111.12 (5.4% Downside)
#2 - JD.com (NASDAQ:JD)
JD.com Inc. (NASDAQ: JD) is another e-commerce name to watch among Chinese stocks. Along with Alibaba, JD.com is colloquially referred to as the Amazon.com Inc. (NASDAQ: AMZN) of China. However, JD.com may be the most deserving of the title as it’s the largest e-commerce platform in the country.
JD stock is up more than 75% in the past month. That’s pushed the stock positive for the year. It now sports a 58% gain in 2024. Is this an example of the cream rising to the top? Or, as some analysts contend is the stock prime for a pullback?
Analysts have been neutral on the stock since it reported earnings in August. The company doesn’t report again until November, and the price action may be choppy until then. However, bullish investors and nimble options traders may view any healthy pullback as a prime opportunity to invest in one of the quality Chinese stocks.
About JD.com
JD.com, Inc operates as a supply chain-based technology and service provider in the People's Republic of China. The company offers computers, communication, and consumer electronics products, as well as home appliances; and general merchandise products comprising food, beverage and fresh produce, baby and maternity products, furniture and household goods, cosmetics and other personal care items, pharmaceutical and healthcare products, industrial products, books, automobile accessories, apparel and footwear, bags, and jewelry.
Read More - Current Price
- $47.08
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $36.93 (21.6% Downside)
#3 - Baidu (NASDAQ:BIDU)
Baidu Inc. (NASDAQ: BIDU) is another Chinese technology stock that’s shown strong growth in the last 30 days. For U.S. investors, one way to think about Baidu is as the Chinese equivalent of Alphabet Inc. (NASDAQ: GOOG). The company operates the nation’s largest search engine in addition to IQIYI, an online entertainment platform which also gives the company exposure to disruptive technologies like autonomous vehicles.
Like Alibaba, Baidu was trading near 5-year lows before the Chinese government’s announced stimulus measures. Since then, the stock is up 36.3%, but it’s still down 7.25% in 2024.
Some investors will view the company’s 11.9x forward earnings as a sign that the stock is undervalued. But other analysts are concerned that investors continue to overpay for a stock that is showing some weakness on the topline. That said, analysts have a consensus price target of $132.13 on BIDU stock which would be a 19.7% upside.
About Baidu
Baidu, Inc engages in the provision of internet search services in China. It operates through two segments: Baidu Core and iQIYI. The company offers Baidu App to access search, feed, and other services using mobile devices; Baidu Search to access its search and other services; Baidu Feed that provides users with personalized timeline based on their demographics and interests; Baidu Health that helps users to find the doctor and hospital for healthcare needs; and Haokan, a short video app.
Read More - Current Price
- $114.47
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $132.13 (15.4% Upside)
#4 - GDS Holdings (NASDAQ:GDS)
The data center market is as hot in China as it is in the United States. However, it’s still evolving. So even with the market expected to be valued at over $69 billion this year, further strong growth is likely. That’s the core thesis for owning GDS Holdings Ltd. (NASDAQ: GDS) as part of the Chinese stock revival.
The company’s business model focuses on “colocation” services. This means it places its servers and other hardware in rented spaces. It’s more cost-effective than housing the equipment on its own premises where it would pay for the real estate and electricity. The overhanging issue for the company is profitability.
GDS stock is up 28% in the past month. That’s below other Chinese stocks. However, those gains are adding on to already strong growth. This has many analysts concerned that the stock could be due for a correction. The consensus price target is $15.29 which would be a 31% drop from the price on October 7, 2024.
About GDS
GDS Holdings Limited, together with its subsidiaries, develops and operates data centers in the People's Republic of China. The company provides colocation services comprising critical facilities space, customer-available power, racks, and cooling; managed hosting services, including business continuity and disaster recovery, network management, data storage, system security, operating system, database, and server middleware services; managed cloud services; and consulting services.
Read More - Current Price
- $21.99
- Consensus Rating
- Buy
- Ratings Breakdown
- 4 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $15.29 (30.5% Downside)
#5 - Nio (NYSE:NIO)
Nio Inc. (NYSE: NIO) is one of China’s leading electric vehicle (EV) manufacturers. It’s not an easy time to own EV stocks in general. This is particularly true in China which is trying to stimulate its tired consumer base. Despite a 34.8% increase in the last month, NIO stock is still down 25% in 2024.
However, that hasn’t affected Nio’s EV deliveries which reached a record level of 62,000 deliveries in its most recent quarter. That caps a five-month stretch where the company’s deliveries topped 20,000.
A key yardstick for investors will be the success of the company’s ONVO L60 offering. This is being launched as a response to the Tesla Inc. (NASDAQ: TSLA) Model Y which is capturing a significant share of the low-end market in the country. To that end, investors should note that the company received a cash infusion equivalent to $470 million from investors that will help Nio bring the ONVO to market and develop its next model, Firefly.
About NIO
NIO Inc designs, manufactures, and sells electric vehicles in the People's Republic of China. The company is also involved in the manufacture of e-powertrain, battery packs, and components; and racing management, technology development, and sales and after-sales management activities. In addition, it offers power solutions for battery charging needs; and other value-added services.
Read More - Current Price
- $6.79
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $5.93 (12.6% Downside)
#6 - ZTO Express (NYSE:ZTO)
If you’re looking for an indirect China stock play, ZTO Express Inc. (NYSE: ZTO) is a name to consider. The company provides express delivery and other value-added logistics services in China. The company has delivered steady revenue and earnings despite the economic slowdown in the country.
Analysts are projecting 15% revenue growth this year and 10% growth in the next fiscal year. That, however, may not account for the expected demand from the government’s stimulus measures. Plus, the company is making a strategic pivot to focus on service quality as opposed to just going after market share.
ZTO stock is up 24% in the last month which has pushed the stock into positive territory for the year. This may be as good as it gets for now. If the Chinese market fails to grow as hoped, ZTO Express will be hurt. But with analysts having a Moderate Buy rating on the stock, investors should view any pullback as an opportunity.
About ZTO Express (Cayman)
ZTO Express (Cayman) Inc provides express delivery and other value-added logistics services in the People's Republic of China. It offers freight forwarding services; and delivery services for e-commerce and traditional merchants, and other express service users. The company was founded in 2002 and is headquartered in Shanghai, the People's Republic of China.
- Current Price
- $26.78
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 3 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $27.03 (0.9% Upside)
#7 - IShares MSCI China ETF (NASDAQ:MCHI)
With so much uncertainty surrounding Chinese stocks, an exchange-traded fund (ETF) is not a bad way to gain exposure. If that’s your thinking, the iShares MSCI China ETF (NASDAQ: MCHI) is a strong contender. The fund has $6.16 billion in assets under management (AUM) as of October 7 and many of the company’s on this list are among the fund’s top 50 holdings.
Shares of MCHI were flat for 2024 prior to the recent surge when the stock price shot up by 43%. In fact, the five-year stock chart looks very similar to that of Alibaba, which makes sense since BABA is the fund’s second-highest weighted holding. The fund itself is a market-cap-weighted index, which means large-cap companies like Alibaba have a higher percentage of shares in the fund.
With the recent run higher, the fund is trading near its 52-week high and is showing exceptionally high volume. That will likely not be sustainable so investors should expect some downside. However, the stock does pay a semi-annual dividend with a 2.01% yield. Plus, the expense ratio of 0.59% is justifiable for a stock with this kind of growth potential.
About iShares MSCI China ETF
iShares MSCI China ETF, formerly iShares MSCI China Index Fund (the Fund), is an exchange traded fund. The Fund seeks investment results that correspond to the price and yield performance, of the MSCI China Index (the Underlying Index). The Fund is designed to measure the performance of the top 85% of equity securities by market capitalization in the Chinese equity markets.
Read More - Current Price
- $59.67
- Consensus Rating
- Buy
- Ratings Breakdown
- 4 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $67.05 (12.4% Upside)
Investing in China will continue to carry some risk. In fact, many analysts already suggest that a short-term pullback is likely. But if you believe that the Chinese economy may be at a bullish inflection point, Chinese stocks may present an opportunity for risk-tolerant investors.
The volatility in Chinese stocks in the past five years is a reminder that what happens in China is important to investors, even those who only invest in many U.S. companies. However, with volatility expected to drive the market for some time to come, it's going to be difficult to avoid direct or indirect exposure to Chinese stocks.
The seven stocks in this presentation are just a small sample of the potential opportunities that exist. And investors should take note that there are ways to invest in the country that don't require you to invest directly in Chinese companies. now could be a good time to look at iron and steel stocks. It could also be a time to consider companies that directly ship to China.
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