With a population of 1.4 billion, China is the most populous nation globally. It is also an global economic growth engine. As China and the rest of the world look beyond the initial health and economic impact of the COVID-19 crisis, market participants are researching China stocks to invest in.
Although China’s economy may slow further in 2020, China’s GDP is still expanding at an average annual rate of at least 6%. Over the longer term, China is likely to overtake the U.S. as the world’s number one economy.
Year-to-date, the S&P 500 is down about 6%. By comparison, the iShares MSCI China ETF (NASDAQ:MCHI) and the iShares China Large-Cap ETF (NYSEARCA:FXI) are down 0.5% and 7.5% respectively.
At present the U.S.-China relationship seems more fragile than ever before. And it’s anyone’s guess as to how price moves will be in U.S. or China stocks over the course of the year. But if you’re a long term investor, then you may want to do due diligence in Chinese companies. For example, as you research, you may note that in the long run, large-cap China stocks overall have stability and robust returns.
Yet mid-cap China stocks are likely to be more volatile, in part due to the dynamics of the country, such as an ever-evolving regulatory environment. But patient investors who are able to take on increased short-term risk may be rewarded with higher returns in the next couple of years..
Today, I’ll discuss seven China stocks that are likely to deserve your attention, especially as the economy recovers. I believe they all have a compelling growth story in China’s economic and technological development. The China stocks include:
- Alibaba Group (NYSE:BABA)
- Baozun (NASDAQ:BZUN)
- CNOOC (NYSE:CEO)
- JD.com (NASDAQ:JD)
- Tencent (OTCMKTS:TCEHY)
- Weibo (NASDAQ:WB)
- ZTO Express (NYSE:ZTO)
The next several weeks may bring more volatility in prices of China stocks. Although short-term investors could expect daily price swings in these Chinese stocks possibly with a downward bias, long-term investors may see any price declines as opportunities to go long. With all that in mind, let’s dive in.
China Stocks to Invest in: Alibaba Group (BABA)
Current Price: $217.64
52-Week Range: $151.85 – $231.14
Over the past two decades, Alibaba has expanded from a basic e-commerce sales platform into a multinational technology company. Now its products and services range from e-commerce to retail, cloud operations, technology and fintech. It is possibly best known for its e-commerce platforms, including T-Mall and Taobao. It is also now the market leader in cloud computing in Asia.
In late May, the firm announced financial results for the quarter and fiscal year ended March 31. Revenue for Q4 went up by 22% to $16.1 billion, beating analysts’ forecasts. Investors cheered as management highlighted the steady recovery seen since March.
Alibaba is increasing its global outreach and hence revenue from non-Chinese operations. For example, as part of its efforts to increase market share in Southeast Asia, it acquired the majority stake in Singapore-headquartered e-commerce operator Lazada. Nonetheless, at present over 90% of revenue is still China-based. Therefore the state of the domestic economy affects the growth outlook for the company as well as for BABA stock.
Strong secular growth trends in China should provide tailwinds for this e-commerce and cloud computing giant. I regard Alibaba as a solid China stock to invest in. The share price will likely reach $250 sooner than later.
Current Price: $33.42
52-Week Range: $22.19 – $56.47
Baozun is an e-commerce solutions provider in China. It helps retailers set-up online storefronts, produce marketing campaigns, and undertake fulfillment services. But its customers are not Chinese companies. Rather it helps foreign firms to establish a presence in China.
For example, several of its notable clients include multinational brands like Starbucks (NASDAQ:SBUX) and Nike (NASDAQ:NKE). It helps these companies to integrate their products and services into e-commerce platforms such as those of Alibaba.
In early June, the group announced robust Q1 results as revenue grew 18% YoY. Similarly total Gross Merchandise Volume (GMV) increased 17.6% YoY.
Chief Financial Officer Robin Lu commented, “Since March, China’s e-commerce sector has begun steadily recovering while the logistics industry has normalized … Provided the macroeconomic environment does not deteriorate any further, we anticipate that GMV for the second quarter of 2020 will grow by at least 25%.”
Many analysts regard the group as proxy to the Chinese consumer, especially in terms of their purchases of foreign goods. Therefore if you also believe that within the decade consumer spending levels will continue to go up as disposable incomes increase, then you may consider BZUN is a China stock to invest in.
Current Price: $114.80
52-Week Range: $81.11 – $181.13
CNOOC is the is the largest producer of offshore crude oil and natural gas in China. With a market cap of $51.3 billion, it is also one of the largest oil and gas exploration and production companies in the world. It has oil and gas assets in Asia, Africa, North America, South America, Oceania and Europe.
The company has been listed in the U.S. since 2001. In late April, it released Q1 results. It had a total net production of 131.5 million barrels of oil equivalent (BOE), representing an increase of 9.5% YoY. Production from China went up by 9.7% YoY to 87.1 million BOE. However, despite increased oil and gas sales volume, revenue was down 5.5% YOY, mainly because of lower realized oil and gas prices.
Since the lows hit in March, similar to share prices of many other energy companies, CEO stock is up about 40%. Therefore, there will likely be some profit taking in the near future. Market participants looking for China stocks to invest in may consider buying the dips in CNOOC stock, especially if the price falls toward $100.
As China gets more urbanized and grows, the demand for oil and gas is likely to continue to go higher. Long-term shareholders would also benefit from the current dividend yield of 8.7%. The shares are expected to go ex-dividend next in September.
Current Price: $57.99
52-Week Range: $25.77 – $60.97
Most market participants are likely familiar with the Chinese e-commerce giant JD.com. It also has hundreds of warehouses and thousands of delivery stations as well as fresh food stores across China. Put another way, it is en route to becoming a leading supply chain-based technology and service provider. In addition to being one of China’s most valuable enterprises, JD.com is a member of the Fortune Global 500.
According to research by the China Center for Economic Research, “the most popular products sold online at JD are cell phones, followed by food and beverages, makeup and cosmetics, digital products, and lifestyle and travel goods.”
In mid-May, the group delivered a strong Q1 performance. Revenue expanded 20.7% from the same period in 2019. Its annual active customer accounts saw a 24.8% YoY growth and reached 387.4 million in the 12 months ending on March 31. Its average daily number of active mobile users surged 46% YoY.
Analysts typically pay special attention to mobile users as they are a crucial driving force of consumer spending in the country. China has the most mobile users in the world. And the mobile market is expected to grow further as China’s cellular infrastructure improves.
CEO Richard Liu remarked on the results, “Strong user growth during the first quarter reflects consumers’ increasing reliance on JD.com to support every aspect of their lives.” Management now expects Q2 net revenue to grow between 20% and 30% YoY.
Revenue in China’s e-commerce market is projected to go over 41 trillion in 2020. And online shopping represents over a third of China’s total retail market. By comparison, e-commerce in the U.S. represents about 11% of the nation’s total retail sales.
These positive tailwinds behind JD stock, I believe, make it one of the China stocks to invest in.
Current Price: $56.75
52-Week Range: $40.04-$58.66
Over the past two decades, Tencent has become a Chinese tech behemoth. For example, through the Weixin group, it owns WeChat, China’s most popular social media and messaging app. In addition, the group has a strong position in online gaming and payments as well as cloud operations. Globally it is one of the largest video game publishers by annual revenue. Tencent Video is also one of the top video streaming platforms in China.
Within the Chinese cloud market, with a market share of about 18%, Tencent Cloud is number two behind Alibaba Cloud. In Q4 2019, China’s cloud infrastructure market grew over 65% to reach $3.3 billion. This increase accounted for accounted for a 10.8% share of the global total.
Regular InvestorPlace readers may remember that in Dec. 2018, Tencent had spun off its majority-owned music streaming unit, Tencent Music Entertainment (NYSE:TME), in an IPO on the New York Stock Exchange. The two companies have recently acquired a combined 10.4% stake in the newly public Warner Music Group (NASDAQ:WMG). This recent transaction shows Tencent’s aspirations to grow in the global music industry, too.
In mid-may, the Shenzhen-based group released robust Q1 results. Revenue of $108 billion yuan was above Wall Street’s estimate of $101.4 billion yuan. Also operating income of $37.36 billion yuan was 1.7% better YoY than $36.74 billion yuan.
If you’re considering buying into a well diversified Chinese technology company, then TCEHY should be on your radar of China stocks to invest in.
Current Price: $32.47
52-Week Range: $28.93 – $55.52
Weibo, a social media company with a popular micro-blogging website, which was spun off from Sina Corp (NASDAQ:SINA) in 2014, opened with an IPO price of $17 in April 2014. Alibaba is the second-largest shareholder after WB’s parent company SINA.
Chinese internet celebrity (better known as “wanghong”) accounts at Weibo, and the website’s rich multimedia functionalities help make WB a much loved and somewhat indispensable social media company within China.
Analysts highlight that Weibo embodies Chinese consumers’ love of social networking. Therefore, it has been increasing advertising revenue from third parties, mostly thanks to being the website of choice for celebrity accounts. The group also has invested in live video streaming and fintech which are also contributing to the bottom line.
However, China’s advertising space has recently become crowded. As a result WB stock has had a tough several quarters. Yet on May 19, the group released Q1 results that beat analysts’ forecasts.
Total net revenues came at $323.4 million, a decrease of 19% compared to $399.2 million in the prior year. In Q1, Weibo generated 85% of its revenue from ads. The rest came from the value-added service (VAS) business, which relies mainly on live video broadcasts.
Monthly active users (MAUs) were 550 million in March 2020, a net addition of approximately 85 million users YoY. Mobile MAUs represented approximately 94% of MAUs. Average daily active users (DAUs) were 241 million in March 2020, a net addition of approximately 38 million users YoY.
Management now expects a 7%-12% annual drop in revenue in Q2. CEO Gaofei Wang said: “On monetization, we have seen a gradual recovery trend since March for most brands and merchants from the trough in February, although there are still uncertainties brought forth by the pandemic.”
I believe most of the recent bad news has already been priced into WB shares. If you also regard Weibo’s brand value in Chinese social advertising to be high, then you may consider WB as a China stock to invest in.
ZTO Express (ZTO)
Current Price: $24.89
52-Week Range: $16.98 – $35.82
ZTO Express is one of the largest logistics and delivery companies in China in terms of parcel volume and profit growth. The group was founded in May 2002 and listed on the New York Stock Exchange in Oct. 2016.
Management describes the delivery operator as “both a key enabler and a direct beneficiary of China’s fast-growing e-commerce market.” It controls close to a fifth of the express delivery market in the country and aims to reach a fourth by 2022. InvestorPlace’s Louis Navellier compares it to FedEx (NYSE:FDX) or UPS (NYSE:UPS) in the U.S.
In late May, the group reported somewhat disappointing Q1 earnings. Quarterly revenue declined by about 14% YoY. Similarly, gross profit was down by 35% and net income declined about 45%. Although volumes in e-commerce-related shipping went up close to 5%, the company came under pricing pressure. In other words, fierce competition meant ZTO Express had to lower prices.
Nonetheless, the company’s cash flow generation is strong and balance sheet is healthy. And the group has has plenty of liquidity.
Following the quarterly results, ZTO stock initially sold off. However, so far in June it has rallied to hit an all-time high of $35.82. There could be some short-term profit taking in the stock, especially if broader markets come under pressure. Yet, I’d expect ZTO stock to keep the momentum going in the coming quarters. Therefore, I regard it as a long-term China stock to invest in.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.