As if investors didn’t have enough to think about in 2020, tensions between the United States and China are continuing to flare up. One of the issues, of course, is the “what did they know and when did they know it” events surrounding the novel coronavirus. There are also issues surrounding global supply chains and the fate of 5G networking.
But another issue that should be drawing the concern of investors is the threat of Chinese stocks being delisted from American exchanges. On Friday, June 26 Luckin Coffee was delisted from the NASDAQ. The company had been in hot water since reports early this year that it had credited itself with thousands of phantom sales.
But that isn’t the reason for the delisting. The reality is that Chinese companies don’t abide by the same agreed upon accounting standards as American companies. And that can make it harder for investors to get an accurate picture of what is going on with their business at a given moment.
However, like most issues between the two countries, it’s not as simple as that. There are Chinese companies that are considering voluntarily and unilaterally removing themselves from American exchanges and list on the Hong Kong or Shanghai exchanges.
While neither of these moves would mean that U.S. investors would be prohibited from trading these stocks, it could make it more difficult.
U.S. relations with China will be an issue during this election year, and likely beyond. It would be well worth your time and attention to pay careful attention to your current or planned exposure to these China stocks.
Quick Links
- Alibaba
- JD.com
- NetEase
- Baidu
- Bilibili
- Pinduoduo
- China Mobile
#1 - Alibaba (NYSE:BABA)
Alibaba (NYSE:BABA) is probably the most well-known Chinese stock. Alibaba is primarily listed on the New York Stock Exchange, and has a secondary listing on the Hong Kong Stock Exchange. The company’s initial public offering (IPO) raised approximately $13.8 billion that included the issuance of 500 million new ordinary shares. However, the new offering only diluted BABA’s total shares by less than 3%.
It is colloquially, but perhaps too conveniently, labeled as the Amazon of China. But that minimizes what Alibaba really does. Rather, Alibaba combines many of these companies' core competencies in a single company that has a market cap of just under five trillion dollars.
For its part, Alibaba management has stated that the company prepares and presents its financial statements in accordance with U.S. accounting standards. And investors know that Alibaba stock will continue to trade on the NASDAQ exchange for several years, even if the United States passes a bill to have the stock delisted. That being said, it’s hard to see Alibaba fully opening the company’s books to U.S. regulators.
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
- $82.28
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $114.07 (38.6% Upside)
#2 - JD.com (NASDAQ:JD)
JD.com (NASDAQ:JD) is the second largest name in Chinese e-commerce. And like Alibaba, JD recently completed its IPO on the Hong Kong Stock Exchange. The offering was for 133 million new ordinary shares. The company raised $3.9 billion for the sale which is expected to dilute the company’s stock by up to 5%.
JD has not publicly commented about the potential delisting in the United States. However, the company has filed an IPO for the U.S. online grocery affiliate, Dada Nexus. This leads many to believe the company is not looking to walk away from its U.S. listing.
Like many companies both in the U.S. and China, JD.com suffered an initial hit on concerns about how much discretionary spending would be lost as a result of the novel coronavirus. But if the results of the company’s 618 Grand Promotion is any indication, there is little for investors to be concerned about.
In May, JD.com forecasted net revenue to grow by 20% to 30% year-over-year in July, August, and September.
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
- $35.64
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $41.36 (16.0% Upside)
#3 - NetEase (NASDAQ:NTES)
A third Chinese company that has recently completed an IPO to trade on the Hong Kong Stock Exchange is NetEase (NASDAQ:NTES). The offering, which netted the company $2.7 billion, was expected to dilute NTES shares by approximately 5%. NetEase is China’s second-largest gaming company, but the largest that is listed on a major U.S. exchange.
The IPO is said to be used to accelerate its international expansion. NetEase Chief Executive Officer (CEO) William Ding said the Hong Kong IPO was a sign that NetEase was “returning to a market in which we share a closer mutual understanding.” That was undoubtedly a veiled critique of U.S. regulators. However, there’s more to that story. In 2001, NetEase was almost delisted from the NASDAQ. The company was the subject of fraud allegations and missing an annual report.
However, like JD.com, NetEase has recently spun off Youdao (NYSE:DAO) its online education unit which suggests they are not looking to leave the U.S. exchanges.
About NetEase
NetEase, Inc engages in online games, music streaming, online intelligent learning services, and internet content services businesses in China and internationally . The company operates through Games and Related Value-Added Services, Youdao, Cloud Music, and Innovative Businesses and Others segments.
Read More - Current Price
- $92.09
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $107.29 (16.5% Upside)
#4 - Baidu (NASDAQ:BIDU)
By now, you’ve noticed that tech is a theme of this presentation. And Baidu (NASDAQ:BIDU) certainly fits into that category. Now, unlike many of the stocks in this presentation, Baidu is down over 10% for the year. To understand why, you have to be familiar with the nature of Baidu’s business.
They are the premier online search engine in China, controlling nearly two-thirds of the online search market. But they don’t stop there. The company is also the country’s third-largest online ad platform.
They offer Chinese and Japanese language searches through its DuerOS virtual assistant, web-based marketing services, and have even expanded into the development of autonomous vehicles.
Plus the company is seeing growth in daily active users on its mobile app. And that means that the company’s search engine is expanding beyond PCs.
However, Baidu faces intense competition within its own country. Alibaba, Tencent, and Bilibili (NASDAQ:BILI) are all encroaching on its advertising revenue.
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
- $85.80
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $113.75 (32.6% Upside)
#5 - Bilibili (NASDAQ:BILI)
Speaking of Bilibili (NASDAQ:BILI), BILI stock is up over 100% for the year. Like a lot of Chinese companies, it seems that analysts can’t help but call companies, “the Chinese version of (fill-in the blank).”
Some of these are a stretch (see Alibaba) but in the case of Bilibili calling it “the YouTube of China” is apt. The one exception is that BILI caters to a younger core audience. This is reflected in its heavy dosage of anime cartoons.
And the stock is up because Chinese consumers have been stuck at home. And these consumers have flooded to platforms such as Bilibili. And as the platform draws more customers, it also draws more subscription dollars and ad revenue.
In May, Bilibili missed on earnings, but by every other meaningful metric delivered a stellar report. They brought in revenue of $327 million that was 69% higher than the same period in the year prior. Average monthly active users (MAUs) showed a 70% YOY increase as did average monthly active mobile users which were up 77%. And in the all-important average monthly paying users, the company also saw a 134% YOY increase.
About Bilibili
Bilibili Inc provides online entertainment services for the young generations in the People's Republic of China. It offers a range of digital content, including professional user generated videos, mobile games, and value-added services, such as live broadcasting, occupationally generated videos, audio drama on Maoer, and comics on Bilibili Comic.
Read More - Current Price
- $19.59
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $19.69 (0.5% Upside)
#6 - Pinduoduo (NASDAQ:PDD)
Pinduoduo (NASDAQ:PDD) has an odd business model, but it might just be odd enough to be an absolute genius idea in these socially distant times. Let’s just say it makes e-commerce a collaborative experience.
The company allows online shoppers to invite a group of friends or followers to join them. In turn, the group gets bulk-buying discounts on certain items. It’s a combination of Instagram meets Groupon I suppose, but it’s obviously working for Pinduoduo. The company has 628.1 million active buyers and posted an increase of 76% in its transaction revenue in its most recent quarter.
The success of PDD gets even better when you consider that it took Alibaba 15 years to reach 500 million active buyers. However, some of that could be explained by Alibaba creating a market that Pinduoduo is happily participating in.
PDD stock is up over 100% in 2020 with virtually all of that growth coming after April 1. This suggests that the company is continuing to post strong numbers even after the Chinese lockdown measures ended.
About PDD
PDD Holdings Inc, a multinational commerce group, owns and operates a portfolio of businesses. It operates Pinduoduo, an e-commerce platform that offers products in various categories, including agricultural produce, apparel, shoes, bags, mother and childcare products, food and beverage, electronic appliances, furniture and household goods, cosmetics and other personal care, sports and fitness items and auto accessories; and Temu, an online marketplace.
Read More - Current Price
- $99.51
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $173.40 (74.3% Upside)
#7 - China Mobile (NYSE:CHL)
Up to this point, we’ve been taking a look at growth stocks. But to close this presentation, let’s take a look at China Mobile (NYSE:CHL). To understand the allure of this company, consider the fact that the Chinese mobile market includes 946 million customers. That user base is almost three times larger than the entire population of the United States.
And that number, as massive as it is, is also the reason why CHL is not a growth pick. The stock is probably near a saturation point. But the company will find ways to get at least nominally more revenue from existing users through measures like more expensive data plans and expanded services.
But like many U.S. telecom stocks, customers can look at China Mobile for its dividend which currently stands at an eye-popping 8.69%.
However, China Mobile makes this list because it is firmly controlled by the Chinese government. And if the current legislation in the U.S. Congress becomes law, then CHL will automatically be marked for delisting because the government’s stake would disqualify it from being listed on a U.S. exchange.
About China Mobile
China Mobile Limited provides mobile telecommunications and related services in Mainland China and Hong Kong. The company offers local calls; domestic and international long distance calls and roaming services; and value-added services, such as caller identity display, call waiting, conference calls, and others.
Read More - Current Price
- $27.51
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
Chinese companies that are listed on American exchanges have a market value of over $1.3 trillion. And although none of these stocks are part of the S&P 500 (a common measuring stick), they still are becoming a staple in many portfolios.
The good news for investors is that even if one or more of these stocks is delisted, it won’t happen overnight. In fact, it will be several years before the stocks will get dropped from the exchange. And to be honest, it may not happen at all.
So, is it likely to happen? If I had the answer to that, I could be a wealthy man. The bill has passed the U.S. Senate. But the House of Representatives is pledging “a rigorous debate” that the bill did not receive in the Senate.
Rigorous debate in Washington-speak means it could very well be tabled until after the election. And even if it does get passed before, there’s no telling if President Trump would actually sign the bill into law.
I only walk you through this exercise to remind you that China is an issue that most politicians really don’t want to touch. But as an investor, this is an issue that you must continue to pay attention to, particularly if your portfolio has exposure to China stocks.
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