Chinese Stocks Stage Impressive Rebound

Key Points

• Confidence and capital return to Chinese stocks after years of market losses, geopolitical tensions, and a property crisis.
• China's economy experienced a notable growth of 5.3% in the first quarter of 2024, signaling a positive trajectory and a potential turnaround.
• Heavyweight Chinese stocks listed in the United State, such as JD, BABA, and BIDU, have rebounded recently and outperformed.

After consecutive years of market losses in China, geopolitical tensions, and a lingering property crisis, many U.S. asset managers are now showing confidence in Chinese stocks, highlighting potential opportunities. In March, billionaire investor Ray Dalio suggested that China presents an opportune moment for investment due to its affordability.

Heavyweight Chinese stocks listed on the U.S. exchanges recently hit bottom and surged higher, presenting a promising risk-reward proposition. Once deemed uninvestable due to economic challenges, China's stock market has experienced a notable resurgence, with the MSCI China Index surging 20% from its bear market lows. 

Factors contributing to this turnaround include Beijing's efforts to revitalize the economy by restricting short-selling and promoting new real estate strategies. Despite earlier concerns about China's economic outlook, foreign investors are returning to their markets, buoyed by a 5.3% economic growth in the first quarter of 2024. 

With this backdrop, it's worth exploring whether it’s time to buy oversold Chinese stocks that have recently rebounded, such as Alibaba Group NYSE: BABA, Baidu NASDAQ: BIDU, and JD.com NASDAQ: JD.

Alibaba Group Holding Limited

Alibaba is a prominent eCommerce and Internet technology giant. Its primary platform, Alibaba.com, ranks as the world's third-largest eCommerce platform by sales. Alibaba offers infrastructure and marketing support for merchants of all sizes, facilitating brand development and customer connections in China and internationally. Since topping out in 2020, shares of Alibaba have been in a steady and, at times, violent downtrend, falling from its peak in 2020 of $320 to a low in 2022 of $58.01.

However, the stock has recently broken its downtrend and turned positive on the year thanks to its 13.05% surge higher this month. Notably, the stock has reclaimed all major moving averages, including its 200-day Simple Moving Average (SMA). Despite its recent rebound, the stock is 20.65% below its 52-week high and has a modest P/E of 14.81. Analysts are bullish on the name, with a Moderate Buy rating and consensus price target that forecasts an impressive 38.8% upside for the eCommerce giant. 

Baidu, Inc.

Baidu focuses on internet-related services and artificial intelligence. It offers various products and services, including Baidu Search, China's leading search engine. The company has expanded into cloud services, providing storage, data analysis, and AI services through Baidu Cloud.

Like BABA, shares of Baidu recently broke its major downtrend thanks to an impressive 12.8% surge higher last week. Baidu, which is almost 28% below its 52-week high, has an attractive P/E of 14.5 and is a favorite among analysts. Based on 15 ratings, the stock has a consensus Buy rating and consensus price target of $171.64, which forecasts a whopping 51.3% potential upside for the online search giant. 

JD.com, Inc.

JD.com is a prominent Chinese eCommerce company. Initially starting as an online magneto-optical store, the company has evolved into one of China's largest B2C online retailers, offering various products, including electronics, mobile phones, computers, and more. Operating through multiple segments like JD Retail, JD Logistics, and JD Technology, the company is known for its authentic products, competitive pricing, and customer-centric approach.

Shares of JD have not only outperformed the overall market recently but have also been one of the top-performing Chinese stocks in recent months, surging by over 50% in the quarter so far. The company, which has a $51.8 billion market capitalization, offers a 2.25% dividend yield, an attractive P/E of 15.43, and projected earnings growth of 13.33% for the full year. Like the stocks mentioned above, JD is a favorite among analysts. The stock has a Moderate Buy rating and consensus price target predicting over 8% upside.

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