[Editor’s Note: this article was originally published in December 2019. It has since been updated to include the most relevant information.]
The bull thesis on Chinese stocks going into 2020 was surprisingly simple and compelling. You had easing trade tensions, stabilizing geopolitical relations, ample fiscal stimulus from the People’s Bank of China, a rebounding manufacturing sector, and similarly rebounding consumer spending trends. Everything looked good for a big rebound in Chinese stocks.
Then, the coronavirus outbreak happened. Tens of thousands of individuals in mainland China have fallen ill to a new, rapidly spreading coronavirus strain. About two thousand of the infected have died (so far). Daily life in China has come to a screeching halt, and the supposed 2020 rebound in China’s economy has been put on pause.
And yet, Chinese stocks are still rising. The iShares MSCI China ETF (NYSEARCA:MCHI) is actually up year-to-date, while the 5 stocks I picked in late 2019 as the best Chinese stocks to buy in 2020 have averaged an impressive 9.5% gain year-to-date.
Why are Chinese stocks still rallying despite the coronavirus outbreak? Because coronavirus-related headwinds are temporary, while strengthening core fundamentals in China’s economy are long lasting.
That is, like all other modern epidemics, the coronavirus outbreak will be over within a few months. Once it does subside, China’s economy will rebound in a big way, because you still have easing trade tensions and stabilizing geopolitical relations, you have even more fiscal stimulus from the People’s Bank of China, and you have a ton of pent-up consumer demand (99.99% of Chinese consumers are healthy today, and 100% of them have been cooped up in their homes for several weeks).
Big picture: once coronavirus fears subside, the big 2020 rebound in Chinese stocks will resume with a ton of firepower. With that in mind, here are the best Chinese stocks to buy for the big 2020 rebound:
- Alibaba (BABA)
- JD.Com (JD)
- Weibo (WB)
- Bilibili (BILI)
- Vipshop (VIPS)
Without further ado, let’s take a deeper look at why these five top Chinese stocks are ready to rally in 2020 once coronavirus fears subside.
Chinese Stocks to Buy for 2020: Alibaba (BABA)
The best Chinese stock to buy for 2020 is Chinese internet giant Alibaba (NYSE:BABA).
Forget about the coronavirus for a moment. Excluding that, everything else is going right for Alibaba right now. Revenue growth rates are stabilizing, after several quarters of rapid deceleration, as China’s consumer economy picks up steam again. At the same time, the company’s less developed cloud and adjacent technology businesses are gaining scale, so their profit margins are moving higher. This is providing a lift to Alibaba’s overall profit margins, which are improving for the first time in several years. The profit growth trajectory today is consequently as good as its been in several years.
Sure, the coronavirus provides a near-term risk to these trends. But, not a long-term risk. Once fears regarding the virus disappear, everything will get back to firing on all cylinders.
U.S.-China trade tensions will keep easing, providing a boost to consumer and corporate spending trends. More fiscal stimulus from the People’s Bank of China will also provide a boost to consumer and corporate spending. As consumer spending goes higher, Alibaba’s e-commerce platform will sustain big growth. Meanwhile, as corporate spending goes higher, Alibaba’s cloud business will similarly sustain big growth.
Thus, Alibaba’s growth trajectory will continue to improve in 2020, once coronavirus fears subside. That growth trajectory improvement will drive reasonably valued Alibaba stock higher.
Next on this list of Chinese stocks to buy for 2020, we have Alibaba’s little brother in the Chinese e-commerce market, JD.Com (NASDAQ:JD).
The bull thesis on JD stock for 2020 is similar to the bull thesis for BABA stock. China’s consumer economy has been slowing for the better part of the past two years, thanks to escalating U.S.-China trade tensions. Those trade tensions are finally de-escalating, and should continue to meaningfully de-escalate into 2020 as neither side wants to up the trade war ante. Easing trade tensions in 2020 will breathe life back into China’s consumer economy, as well increased fiscal stimulus from the People’s Bank of china, and resurgent consumer spending will create a rising tide for all Chinese consumer stocks.
JD stock looks particularly good heading into this 2020 Chinese consumer stock boom. That is, JD’s revenue growth rates and profit margins are both meaningfully improving. Thus, this company already has a ton of operational momentum. That operational momentum will couple with favorable market conditions over the coming quarters to super-charge this company’s growth narrative.
Yes, again, coronavirus provides a near-term risk here. But, while it will depress first quarter numbers, it will likely produce a boost to second quarter numbers as pent-up consumer demand translates into big consumer spending once daily life in China gets back to normal.
Consequently, big picture, JD stock will power higher in 2020.
Often labeled as the Twitter (NYSE:TWTR) of China, social blogging platform Weibo (NASDAQ:WB) looks poised to have a big 2020 wherein the company’s growth trajectory rebounds in a big way and WB stock runs significantly higher.
Weibo has been hit hard over the past two years by slowing growth across the entire Chinese digital ad landscape. Long story short, the Chinese digital ad market was red-hot for several years, and in order to accommodate all this growth, supply in the digital ad market increased dramatically. But, amid increasing geopolitical and economic uncertainty, Chinese companies have reeled in their digital ad spend over the past two years. This demand reduction has coupled with a supply glut to create pricing, revenue and margin headwinds for all digital ad players, Weibo included.
Amid this market slowdown, though, Weibo has maintained impressive user and engagement growth. Ad dollars always follow engagement. Thus, all Weibo needs to turn its growth narrative around, is for Chinese companies to re-up their digital ad spend.
It looks like they will do just that in 2020… once coronavirus fears subside. Ex the coronavirus, corporate economic conditions in China are set to improve in 2020, supported by easing trade tensions, increasing certainty in the investment landscape, a ton of fiscal stimulus, and expanded bank lending capacity. Against that backdrop, corporations will re-up their digital ad spend.
This will lead to a revenue and margin rebound at Weibo, and that revenue and margin rebound will spark a big rebound in WB stock.
The bull thesis on Chinese social video platform Bilibili (NASDAQ:BILI) is very similar to the bull thesis on Weibo. That is, a digital ad market rebound in 2020 should spark a big rally in both BILI stock and WB stock.
Much like Weibo, Bilibili has been hurt by digital ad market headwinds over the past few quarters, as revenue growth has slowed amid slowing digital ad spend across all of China. But, the Bilibili platform continues to grow by leaps bounds, attracting users left and right because of its video-first value prop in an increasingly video-dominated online world. Last quarter, Bilibili saw its user base grow by nearly 40% year-over-year.
Ad dollars always follow engagement. Bilibili has the engagement. Thus, once Chinese companies re-up their digital ad spend, a lot of those digital ad dollars will find their way onto Bilibili’s platform.
Chinese companies should re-up their digital ad spend in 2020, as global trade tensions ease and the economic outlook improves. Bilibili’s revenue growth rates will consequently improve, too. At the same time, profit margins are finally starting to stabilize here, and improving ad demand trends in 2020 should sustain margin expansion.
Big picture — Bilibili’s revenues, margins and profits should all march higher in 2020, and all that upward momentum should push BILI stock higher, too.
Last, but not least, on this list of Chinese stocks to buy for 2020 is Chinese online discount retailer Vipshop (NYSE:VIPS).
Vipshop has staying power in the Chinese e-commerce market as the de-facto off-price leader. If there is one thing that consumers are always attracted to, it is low prices. Thus, so long as Vipshop can maintain dominance in the off-price channel, the company will forever remain an important part of the Chinese e-commerce landscape.
Also of note, dominance in the off-price vertical for Vipshop ensures that, when the Chinese e-commerce market rebounds in 2020 thanks to easing trade tensions and rebounding consumer confidence, Vipshop’s revenue growth rates will rebound, too. At the same time, profit margins will improve, too, since the company is hyper-focused on reducing expenses and driving positive operating leverage (which should happen in 2020, when revenue growth rates should improve).
Ultimately, in 2020, Vipshop will be powered by accelerating revenue growth and improving margins. That’s a winning recipe that should drive both profits and VIPS stock higher, as soon as coronavirus fears subside.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by TipRanks, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango was long JD.