The flux in the Chinese equity market continues, with China stocks in the A-shares market surging nearly 8% in just the past five trading sessions. The Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (NYSEARCA:ASHR), the benchmark measure of stocks traded on the Shanghai Exchange, has come roaring back from a mid-January pullback and is now trading back up to new all-time highs.
Meanwhile, the biggest stocks that trade on the Hong Kong exchange, such as those in the iShares China Large-Cap (NYSEARCA:FXI), are starting to get their sea legs back. FXI is up 3.6% over the past five trading sessions, and though well below its 52-week high, shares are now trending higher again after a sharp drop in the first two weeks of March.
I wrote about the China stocks flux fest recently, pointing out that some of the biggest-name China stocks traded here in the U.S. via ADR have seen quite a bit of selling. In that article, I also pointed out that the People’s Bank of China’s (PBOC) move to cut borrowing costs has yet to lure buyers back into Chinese stocks.
Over the past week, however, buyers have returned. Whether that can be attributed to a latent reaction over the PBOC rate cut, a realization that Chinese stocks are historically cheap based on the current “Cape” ratio relative to the long-term Cape average, or a knee-jerk reaction to Premier Li Keqiang’s recent suggestion that authorities can do much more to stoke economic growth, can’t be known for certain.
What we can say here is that there are some very good Chinese stocks currently on sale. So, if you think China stocks are going to really start heading higher, right now may be a great time to get back in with these three China stocks to buy on the dip.
1) China Stocks to Buy on the Dip—Alibaba Group Holding Ltd (NYSE:BABA)
Alibaba was the darling of the IPO market last year with its record-setting initial public offering (think Amazon.com, Inc. (NASDAQ:AMZN) in Chinese). Since then, however, BABA stock has been a darling of the bears. The giant online and mobile commerce company’s stock has seen some aggressive selling of late, down nearly 19% since the beginning of the year.
That selling could intensify this week, as lock-up expiration on BABA shares comes Wednesday, March 18. This means nearly all of the IPO trading restrictions on the stock will be removed for company insiders and other large investors. The lock-up expiration of an estimated 429 million additional BABA shares will likely put pressure on the stock. But, once that selling settles, investors could be staring at a great opportunity to own what is arguably one of the biggest and best Chinese companies ever to come to market.
If you think the Chinese economy is going to grow, albeit at a slower pace than in the recent past, then you almost have to believe in the long-term earnings potential of Alibaba, as well as the long-term share price appreciation of BABA stock. And, getting into BABA shares once lock-up selling subsides could translate into a huge opportunity to buy this China stock on the dip.
2) China Stocks to Buy on the Dip–Qihoo 360 Technology Co Ltd (NYSE:QIHU)
Chinese Internet search services and online gaming firm Qihoo 360 Technology is one of several Chinese e-commerce companies trying to get back to its former growth glory. The company, which competes with the likes of Baidu Inc (ADR) (NASDAQ:BIDU), has seen its share price tumble some 17.5% so far in 2015. That decline comes despite a surge in the shares over the past five trading sessions of nearly 5%.
On March 9, Qihoo released Q4 earnings that bested expectations, and that showed a marked increase in Q4 top-line growth of 95% to $431.2 million. The problem here, however, is that the cost of that revenue also jumped 241% year over year to $103 million. Increased expenditures and fears over inconsistent growth had caused QIHU stock to falter this year, but the Q4 metrics are encouraging, as is the recent rebound in the stock post-earnings.
Here again, QIHU stock’s dip over the past several months could mean a great, low-cost entry point for this rising China stock search giant.
3) China Stocks to Buy on the Dip–Huaneng Power International Inc (ADR) (NYSE:HNP)
Huaneng Power is a Chinese energy infrastructure company primarily involved in electric power generation. The company produces and sells electricity to China’s regional power grid. It generates that electric power via various fuels, including coal, wind, natural gas, and hydro resources. Huaneng has cargo transportation and port management operations.
The slowing growth in China has caused many investors to view Chinese utilities as toxic, and that’s caused HNP shares to sink nearly 13% so far in 2015. That trend, however, could be changing soon. Already the shares have jumped 2.3% over the past five sessions.
Analysts at Deutsche Bank helped fuel the latest buying, as the firm raised its rating on HNP to “Buy” from “Hold,” citing lower coal costs. On Tuesday, shares were up some 6.6% on the upgrade news, so if you are looking to buy the 2015 dip in this China stock, then now is the time to get in on the sale price before it’s all over.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.
