The Chinese economy is definitely experiencing some major growing pains, as the nation’s real estate sector is undergoing a significant downturn. Meanwhile, its exports and manufacturing sector are decelerating. As a result, the MSCI China Index, which includes many of the country’s leading stocks, experienced a 7% decrease in 2023. During the Great Financial Crisis, China’s government was able to enact effective economic stimulus measures that outpaced the U.S. Moreover, with the country currently experiencing deflation, Beijing appears to have significant room to lower its interest rates. Given these points, I expect China’s economic slump to end in the medium-to-long term. Still, in the shorter term, many Chinese stocks are likely to take big hits. Here are three Chinese stocks to sell to avoid having your portfolio be weighed down by these declines. Moreover, risk-tolerant investors looking for names to bet against may want to consider shorting these three stocks.
Industrial and Commercial Bank of China Limited (IDCBY)
As I noted in the introduction, China’s real estate market and stocks are slumping. Due to the fact that banks generate income through real estate loans and investments, the outlook sector outlook is grim. This makes one of the leading banks, Industrial and Commercial Bank of China Limited (OTCMKTS:IDCBY), a stock to sell.
Additionally, due to the likelihood that the bank made loans to manufacturing and export firms, the bank will be hurt by those sectors.
Also worth noting is that Goldman Sachs cut its rating on the Industrial and Commercial Bank of China in July. It shifted the rating from “buy” to “sell,” citing concerns about “exposure to local government debt, earnings risks stemming from such debt and diverging fortunes among individual banks,” Reuters reported.
Alibaba (BABA)
Many years after Alibaba (NYSE:BABA) launched its cloud unit, the division’s cash flow is still anemic, as its EBITDA came in at just $53 million last quarter.
The cloud unit’s leader, Daniel Zhang, decided to resign earlier this month after just two months in the role.
In March, BABA announced that it would divide into six separate “business units” with their own CEOs and boards. However, BABA will legally remain a single firm, and investors are not very enamored with conglomerates these days. This is further emphasized by the fact that BABA stock has fallen over 70% from its all-time high in October 2020. BABA’s e-commerce business will likely be significantly hurt by the country’s economic slowdown.
Ping An Insurance (PNGAY)
Ping An Insurance (OTCMKTS:PNGAY) invests a large proportion of its premiums in Chinese stocks. This is a less than ideal position to be in as, like I previously mentioned, Chinese equities have been struggling.
Partly due to said phenomenon, Ping An’s bottom line and total investment income slumped 17.6% and 29% last year, respectively.
Additionally, in the first half of this year, Ping An’s profit declined 1.2% year-over-year, as the bottom line of its large retail insurance unit fell 10.4%. Due to the Chinese economic downturn, the company is seeing decreased affordability of insurance coverage for many of its consumers. Ping An’s operating profit per client already dipped 12% in the first six months of 2023.
Ping An is the largest shareholder of British bank, HSBC (NYSE:HSBC). While the bank stock’s recent success is positive for Ping An, the insurance company has battled extensively with HSBC management. This phenomenon is likely distracting Ping An’s leaders from running the insurer.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
