Given the contentious road that the current administration has taken, the recent truce between the U.S. and China came as a surprise to some observers. The ongoing trade war has taken center stage on Wall Street, and the issue remains far from resolved. Still, an agreement to halt tariff increases is a positive step, especially for Chinese stocks.
The importance for the world’s second-biggest economy to find a more permanent solution cannot be overstated. Since the beginning of this year, the benchmark exchange-traded fund iShares China Large-Cap ETF (NYSEARCA:FXI) has dropped double digits. Individual Chinese stocks have hemorrhaged far deeper losses. A thawing in the conflict, no matter how slight, at least offers hope for stabilization.
If market performance is any indicator, the Street appears net optimistic that President Trump will secure a favorable trade deal. The FXI ETF has moved up nearly 7% since the end of October. Notably, several battered-and-bruised companies have generated positive traction over the same timeframe.
Another factor bolstering the case for Chinese stocks to buy are their discounted prices. After witnessing their substantial run-up, several investors have waited for a pullback. If that’s you, this is a huge opportunity.
Still, a word of caution: until the U.S. and China secure a trade deal, speculating on this sector is risky business. Moreover, our domestic markets have weaknesses that could impact international indices, irrespective of upcoming negotiations.
On the other hand, big opportunities almost always entail risk. If you can stomach the volatility, here are 10 Chinese stocks to buy for 2019:
Among Chinese stocks to buy, no name stands out more than Alibaba (NYSE:BABA). Analysts often label Alibaba as China’s Amazon (NASDAQ:AMZN), but the description doesn’t quite do BABA stock justice. After all, the Asian juggernaut’s flagship company sells to a middle class that numbers 430 million people.
Let’s put this into perspective. The U.S. has a total population of 326 million people. You can fit the entire population of the Philippines (at 103.3 million) in the gap between all living Americans and the Chinese middle class. It’s a staggering, almost incomprehensible figure, and this has naturally lifted BABA stock to great heights.
Of course, speculators would like to see a trade deal materialize before jumping onboard. However, BABA stock may have found a bottom. Since October-end, shares have gained over 12%, despite absorbing a 3.3% loss on the Dec. 4 session.
Another big-name Chinese company that regularly finds itself on a list of stocks to buy, Baidu (NASDAQ:BIDU), looks quite attractive. Year-to-date, BIDU stock has dropped nearly 23%. Against its closing high for this year, shares are down 36%.
But this isn’t just about randomly picking investments that have suffered steep losses. You can make an easy case that BIDU stock is fundamentally undervalued. Primarily, the internet services and artificial-intelligence firm features strong profitability margins. Additionally, over the past three years, Baidu has a near-18% annual revenue growth rate.
Of course, artificial intelligence offers huge potential, and Baidu stands on an enviable position. With the aforementioned population advantage, Baidu simply has better data to work with. Moreover, management enjoys a stable balance sheet, highlighted by a very favorable cash-to-debt ratio. In other words, the company has more resources than the competition, which should bode well longer-term for BIDU stock.
Facebook (NASDAQ:FB) may have the most subscribers with its two-billion plus active user base, but Tencent (OTCMKTS:TCEHY) wins in the value department. At just a hair under $400 billion, Tencent’s market capitalization exceeds Facebook’s, primarily because the latter cratered earlier this year.
But TCEHY stock isn’t merely attracting attention based on relative performance. Although shares have taken a dive this year along with other Chinese stocks, Tencent’s AI platform offers significant upside potential. Thanks to China’s nearly 1.4 billion population size, the company has an ample supply of behavioral data. Even better, Tencent’s gaming division makes it relevant to youth, the most desirable demographic.
And like Facebook, TCEHY stock benefits from strong financials. The company generates some of the highest profitability margins in the internet-services category. Furthermore, its sales growth is ridiculously high, and it shows no sign of fading.
Even among Chinese stocks, you’re going to be hard-pressed to find a major name with steeper losses than JD.com (NASDAQ:JD). On a YTD basis, JD stock has hemorrhaged a staggering 49%. Worse yet, this is one of the rarer investments that haven’t experienced a nearer-term sentiment lift.
At the same time, the sharp erosion in market value does make the e-commerce platform an attractive contrarian pick. At its current price below $22, JD stock is at levels not seen since August 2016. I admit that I missed the boat last year when the company enjoyed its dramatic run-up. However, I know I’m not the only one.
Now, JD stock is essentially a time-capsule opportunity. Fears regarding an indefinite trade war along with weak Chinese consumer metrics have hurt shares. But experts predict China’s middle class will grow to 780 million over the next six years. Longer-term, this might be the golden ticket to get JD at a steep discount.
One of the most surprising developments I’ve witnessed in social media is Twitch. The Amazon-owned live-streaming platform specializes in video-game based broadcasts. That’s right: Today’s youth spend considerable hours watching their peers play video games.
You can dismiss this as a frivolous activity. However, you shouldn’t dismiss this trend’s money-making potential. As our own Bret Kenwell proclaimed, this platform really does rake in the revenue and profits. And since analysts frequently regard Huya (NYSE:HUYA) as China’s Twitch, you should take a long look at HUYA stock.
Admittedly, video-game companies have also suffered steep losses in 2018, which may initially dissuade prospective buyers. For the record, HUYA stock is down over 67% against its closing high, which doesn’t help matters. But video games have enjoyed consistently strong demand over the last several years. Furthermore, we’re seeing an entire economy revolve around the sector.
HUYA stock is certainly ugly now, but over time, it could experience a serious rally.
I was premature in my “pragmatic” pessimism towards Weibo (NASDAQ:WB). Investors commonly refer to WB stock as the Chinese equivalent to Twitter (NYSE:TWTR). On the surface, that’s a massive compliment. However, in censorship-friendly China, I feared that a lack of basic human rights threatened Weibo shares.
Despite my apprehensions, WB stock would go on to move 44% higher since my September 2017 warning. That said, shares also succumbed badly in early spring of this year. For the year, Weibo has tanked nearly 38%. So I can’t say that I regret broadcasting my opinions on the matter.
But because the social-media firm has fallen so much, I think it is time to reexamine WB stock. More importantly, the Chinese government has apparently loosened its stance on censorship. Individual citizens have bitterly complained about the trade war’s negative impact and the communist leadership have let it all slide.
If that’s the case, Weibo is an extremely shrewd opportunity.
China Mobile (CHL)
Most Chinese stocks to buy are pure growth plays. As such, very few pay dividends. Essentially, you’re gambling on the beta, and hope that it turns positive for you.
But if you’re really into China-based investments, I’d strongly consider adding China Mobile (NYSE:CHL) to your portfolio. For starters, CHL stock lives up to the telecom reputation in that it has proven stable in turbulent waters. Against its January opener, China Mobile is only down less than 2%. That’s nothing compared to the devastation among most Chinese stocks.
More importantly, CHL stock pays out a very generous 4.5% dividend yield. Currently, defensive industries like telecom or utilities have experienced new life as investors seek reliable avenues to grow their money. With China Mobile, you get the best of both worlds: Exposure to a steady market segment and to Chinese stocks staging a potential rebound.
China Telecom (CHA)
Like China Mobile, China Telecom (NYSE:CHA) distinguishes itself from the rest of its peers for its dividend payout. With a yield of 2.8%, CHA stock offers respectable guaranteed returns, which is at a premium in this environment.
But what really catches the eye is China Telecom’s market performance. Since the beginning of the year, CHA stock has gained 13%. Since the end of February, shareholders are up nearly 26%. In and of itself, these aren’t groundbreaking numbers. But when bringing the broader context into view, China Telecom might as well be a ten-bagger.
Looking at this in hindsight, CHA stock was destined to be an outperformer. China Telecom has aggressively invested in the 5G rollout, which has significant implications for future technologies. As a prime example, 5G could lay the framework for automated vehicles, a must for China’s burgeoning economy.
Baozun (NASDAQ:BZUN) isn’t a household name. But in a few years, BZUN stock could enjoy the same status as Alibaba or JD.com. That’s because as a branded e-commerce solutions provider, Baozun plays a critical role in bridging international businesses.
Almost every major American company wants to do business in China. However, this market presents multiple pitfalls due to cultural, social and structural differences. Practically speaking, Baozun acts as the middleman, setting up operational and administrative platforms. This enables American and western organizations to quickly and effectively engage Chinese consumers.
And when I mentioned brands, we’re talking premium names like Nike (NYSE:NKE) and Microsoft (NASDAQ:MSFT). Quite frankly, without Baozun, what progress American companies have made wouldn’t exist.
Better yet, BZUN stock is down nearly 32% in the second half of this year. An indispensable organization on discount? What more could you want?
ZTO Express (ZTO)
Everybody recognizes that China owns the world’s largest retail market. This is the central reason why retail-centric businesses like Alibaba have caught fire. But with all that e-commerce, somebody has to deliver the physical products to waiting customers.
Enter ZTO Express (NYSE:ZTO). As one of the leading and fastest-growing express-delivery services in China, ZTO stock represents a viable, long-term opportunity. Don’t take my word for it; instead, listen to Alibaba and its logistics arm Cainiao Network, which earlier this year made strategic investments in ZTO.
Another important factor boosting the profile of ZTO stock is the underlying firm’s financials. Management enjoys an abundance of riches, particularly its ultra-sturdy balance sheet. With no debt and $2.7 billion in cash, ZTO has many options.
With shares down over 25% from their closing high, now is a great time to consider a position.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.