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Wednesday, August 10, 2022

5 Chinese stocks to watch as tech crackdown eases

By Century Financial in Blog

5 Chinese stocks to watch as tech crackdown eases
5 Chinese stocks to watch as tech crackdown eases

China – the world's second-largest economy (after the United States) – is also the world’s number one exporter, backed by an industrial policy that boosts domestic manufacturing.

Any macroeconomic or geopolitical news from China is keenly watched by investors given the sizeable influence the nation has over business activities, globally.

2021 was dominated by huge tech crackdown, and lockdowns due to COVID-19 spread. These factors took a severe toll on Chinese stocks, listed on US exchanges.

However, things are looking a bit up as the crackdown is easing and China has started to reopen some cities as COVID wave ebbed.

Further, according to the nation’s state media, China plans to strategically implement effective investments directed towards helping the economy recover rather than resorting to flood-like stimulus.

In the current backdrop, with the government increasing fiscal investment and effective strategies to boost economy, Chinese stocks appear to be picking up from their 52-week lows.

Here we highlight 5 Chinese stocks worth adding to watchlist:

Company Ticker CMP*($) 52-week
low($)
52-week high
($)
Market Cap
($ Billions)

Tencent Holdings Limited

TCEHY 37.81 36.57 67.67 366.825

Alibaba Group Holding Limited

BABA 90.84 73.28 198.45 246.054

JD.com,Inc

JD 58.84 41.56 92.69 92.802

Baidu,Inc.

BIDU 136.4 101.62 182.6 48.027

NIO Inc.

NIO 20.17 11.67 46.38 34.899

*CMP is the price as of US markets close on Aug 8, 2022

 

Tencent offers online games and social network services; FinTech and cloud services, and online advertising services across Mainland China and internationally.

Tencent’s dominance as one of the leading game distributors in China backed by strong gaming portfolio coupled with robust distribution capability, appears to be a winner.

The company looks well positioned to capitalize on this strength as China is the world’s largest video game market, in terms of both users and revenues.

Tencent’s expanding international user base driven by growing popularity of Honor of Kings and Peacekeeper Elite, holds promise. Moreover, Supercell’s Brawl Stars, and Activision Blizzard’s Call of Duty Mobile and League of Legends are expected to drive international revenues in the days ahead.

The market throws a tantrum.

Further, the launch of Take-Two’s Kerbal Space Program on Tencent's WeGame platform in China is expected to contribute well towards the company’s financial performance.

Also, strength in cloud services led by rapid penetration into core sectors, including finance, is expected to lead growth across FinTech and Business Services revenues.

Moreover, improving adoption of its algorithmic advertisement buying solutions makes the company well poised to boost online advertising revenues.

Apart from these, expanding video streaming subscriber base and popularity of live broadcast services including HUYA’s live streaming service, is expected to boost social network revenues.

Nevertheless, weak demand challenges for brand ad may be a headwind for media advertising revenues from platforms, including Tencent News. Also, fall in gaming demand remains a headwind.

As of US markets close on August 8, $TCEHY was at $37.81, up 3.4% from the 52-week low of $36.57. The market cap of the company was at $366.825 billion.

 

China's e-commerce pioneer – Alibaba – cannot be ignored while we discuss stocks from the region.

The company’s first quarter fiscal 2023 results highlight strength across Cloud segment despite a tough macroeconomic environment. Alibaba’s expanding cloud customer base is expected to help retain momentum in the coming days.

Strength in its retail business with robust New Retail strategy holds promise. This is expected to act as growth catalyst across Freshippo, Tmall Import, and Intime Department Stores.

With growing optimism considering the easing regulatory policies across the Chinese tech sector, Alibaba's battered stock could be in for a rebound.

The market throws a tantrum.

However, macro fears over China’s economic growth due to real estate crisis, remains a hangover for the stock.

As of US markets close on August 8, $BABA was at $90.84, up 24% from the 52-week low of $73.28. The market cap of the company was at $246.054 billion.

 

JD.com, Inc. offers supply chain-based technologies and services in the People's Republic of China.

JD’s solid presence across the JD Retail segment is expected to be a key growth driver in the days ahead. Stringent efforts to boost the supply and fulfilment of essentials, backed by omnichannel offerings, amid the pandemic hold promise.

Further, focus on offering services at competitive prices backed by economies of scale and lower procurement costs is expected to help it gain an edge over the rivals.

Also, JD’s growing presence across the supermarket category, specifically, FMCG and fresh produce, bodes well.

The market throws a tantrum.

Apart from these, what deserves a mention is the rising adoption of JD Health services driven by dedicated 24/7 free online medical consultation and digital pharmacy retail offerings.

Strength in JD Logistics backed by growing network of warehouses is expected to contribute to the company’s financial performance, going ahead.

As of US markets close on August 8, $JD was at $58.84, up 41.6% from the 52-week low of $41.56. The market cap of the company was at $92.802 billion.

 

Baidu offers internet search services in China.

The company’s expanding footprint in the autonomous driving arena is expected to be a key catalyst going ahead. In fact, the company has recently received permits making it the first and only company to provide the public in China with fully driverless robotaxi services, without human drivers in the car.

Further, increasing popularity of the Apollo Go Robotaxi service in the nation is worth mentioning.

Strategic efforts to strengthen Baidu’s AI business holds promise. Moreover, the company’s robust DuerOS voice assistant are anticipated to benefit its financial performance.

Also, strength in Baidu Cloud business bodes well.

The market throws a tantrum.

Growing clout of Baidu ACE smart transportation is expected to contribute well to its AI business. Further, continued efforts to boost the mobile search engine with robust AI tools could strengthen Baidu's mobile ecosystem. This could boost growth in the average daily active user base of the Baidu App.

Apart from this, the company’s solid iQIYI services performance, involving online entertainment services, is expected to contribute well towards its financials.

As of US markets close on August 8, $BIDU was at $136.40, up 34.2% from the 52-week low of $101.62. The market cap of the company was at $48.027 billion.

 

NIO, a pioneer in China’s electric vehicle (EV) market, is often referred as the ‘Tesla of China.’

The company’s unique selling proposition (USP) is in providing EVs at competitive pricing. The company’s strong foothold in the rapidly growing EV industry, is complemented by the rising demand for ES6, ES8 and EC6 models.

Further, NIO’s strategic partnership with Mobileye for the effective development of driverless vehicles in China hold promise.

Moreover, strength in the company’s battery swap technology — a part of NIO’s BAAS strategy — is expected to be a key driver, in the days ahead.

According to NIO, a battery pack can be replaced in its vehicles in about three minutes. This is expected to provide it a competitive edge over peers in the EV space.

The market throws a tantrum.

However, risks remain as semiconductor supply chain could be hampered if China-Taiwan crisis deepens.

As of US markets close on August 8, $NIO was at $20.17, up 72.8% from the 52-week low of $11.67. The market cap of the company was at $34.899 billion.

Wrapping Up

China’s easing tech crackdown and strategic investments to boost economy hold promise. However, tensions with US over Taiwan and economic crisis fears owing to strict COVID policies remain an overhang for Chinese stocks.

Nevertheless, at the current valuations, Chinese tech stocks appear significantly cheaper when compared to their US, UK, and European counterparts, making it an attractive long-term bet for investors who are willing to take the risk.

Considering that the Chinese stocks are trading at a discount, given the current interesting mix of elements playing in the backdrop and you would like to invest, feel free to contact our investment consultant, Call us now at @800CENTURY.

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