Chinese equities, listed in both Asia – particularly Hong Kong – as well as the United States, have been steadily declining, much to the chagrin of investors and portfolio managers who believed exposure to Chinese equities was an obvious and essential part of any 21st Century Portfolio. Now, however, even though major Chinese stocks – especially tech games – are trading at record highs, investors around the world are wondering if it isn’t really crazy to even consider buying BAT stocks. formerly advertised – not to mention the more obscure Chinese. penny plays.
Baidu (NASDAQ: BIDU), Ali Baba (NYSE: BABA), Tencent (OTC: TCEHY), along with other major Chinese stocks, were seen by investors as the Chinese equivalents of famous US FAANG stocks: Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), and Alphabet (NASDAQ: GOOG). As businesses, these companies may still have more advantages than their Western counterparts in the long run. But are they worth the risk?
Game On or Game Over?
Two analysts weighed in with CNBC this week on the state of Chinese stocks. Mary Erdoes, CEO of JP Morgan Asset & Wealth Management, reminded investors that when US yields are unusually high, Chinese stocks can be bought at a discount. And indeed, the MSCI China Index is down nearly 20% this year, while the S&P 500 is still up nearly 16% even as the recent sell-off continues. Stating that “China has been put up for sale,” Erodes appeared to express some disbelief in the deep concerns of US investors about Chinese markets and companies.
“The whole world twist about words coming from China is the same thing you hear from the US government, so I don’t know why it causes so much consternation,” she told CNBC’s Delivering Alpha. Erodes, who sits on the US-China Business Council, compares Beijing’s interest in containing or breaking monopolies on their big tech stocks to the rhetoric and efforts we see from Washington regarding our tech giants. So US investors Are they overreacting to Beijing’s measures and / or are they under-responding to ours? Is the world’s second largest economy too big and too cheap right now not to invest?
Or is there something about China under Xi Jinping that has investors who are rightly reluctant?
Do not invest in China, Inc.
“China Inc. One country, one company, one CEO. This is how the founder and CEO of Social Capital, Chamath Palihapitiya, described the state of the Chinese markets to the investors of Delivering Alpha. While companies can generate fees and earn money with billions of dollars in foreign capital, the “game is over” for him when it comes to investing in Chinese stocks. China, he said, needs to be a “more investable place” before investors willy-nilly engage in asset management companies with high exposure to China. While investors should always keep a close eye on rising China, for now, he says he will read news on China, but not invest there.
Speaking as someone who has been covering Chinese equities for quite some time, I have never been more optimistic about investing in Chinese equities than I have been this year. I sold almost all of my Chinese stocks last year after I jumped on the DiDi train and then abruptly.
But now, as indexes in the US look poised for a drop, I’m finally looking east again. But beware of more volatility, as Xi Jinping’s pivot to a more state-controlled old-fashioned Chinese economy takes hold. The only way to invest in China now is to do like the Chinese: have a five-year plan.
Five Chinese stocks for a five-year plan
At around $ 143. 69 per share on Wednesday noon, the stock is now where it was in June 2017. Meanwhile, the company announced a 22% increase in quarterly profit on August 3. Revenue increased 46% to $ 31.9 billion. Alibaba said it had 1.18 billion annual active customers in the 12 months ended June 30, up 45 million from the previous quarter. The company said active users increased by 14 million, to 939 million.
2. Li Auto (NASDAQ: LI)
While losing money, has seen huge sales growth of its only current model, the Li One SUV, a hybrid. Revenue soared 159% to $ 780.4 million on an easy pace. The revenue forecast for the third quarter was also strong. In the long run, I think there is a significant rise in this title and in the Chinese EV market in general.
3. China Eastern Airlines (NYSE: CEA)
If you want to invest in China for the long term as it regresses into a more state-controlled market maker, why not invest in a 62% government-owned company. China Eastern doesn’t have to play the Cayman Islands-based game like so many Chinese stocks do (a structure investors fear it won’t last in the long run). Not an exciting stock with a relatively small upside, it’s a safe bet on a growing China.
4. Weibo (NASDAQ: BM)
Weibo is China’s mostly apolitical Twitter / Instagram hybrid (thanks to its government overlords who censor). While there is always a chance that users will get bored and move on to the next social media app,
Weibo increased revenue from just $ 656 million in 2016 to nearly $ 1.8 billion in 2019. Weibo is worth buying and could see a return to its highs faster than these other recommendations.
5. IShares PHLX Semiconductor ETF (NASDAQ: SOXX)
The only thing moving faster than digital transformation is the Cold War between China and the United States. The fight of the century can be played by buying Chinese or American defense stocks, or by betting on the semiconductor industry. SOXX, which seeks to replicate the investment results of an index composed of stocks listed in the United States in the semiconductor sector, has doubled since March of last year as the semiconductor war between the United States and China smoldered and Covid-19 affected manufacturing. The action may be ripe for a pullback, but in the long run, this is an American ETF that will continue to function and only benefit from the continuation of the Sino-U.S. Conflict, a conflict that will last for many more. five years.
A middle way to invest in the Middle Empire
There may not be a middle ground to play in the volatile and historically underperforming Chinese stock market. Investing in China always comes with risks. But such a growing economic force cannot be ignored, both on the global stage or in your wallet. As Confucius said: “Everything has beauty, but not everyone sees it. Hopefully Chinese stocks, despite recent setbacks, are no exception.