The last couple of years were forgettable for Chinese stocks to buy, but its prospects are now rising. Investment banks are bullish on the potential of Chinese stocks to outperform on the back of multiple tailwinds. Year-to-date (YTD) gains in the iShares MSCI China ETF are ticking higher than the broader market, a trend that’s likely to continue for a while.
In 2022 and 2023, Chinese stocks were pummeled by regulatory crackdowns across various sectors. Fears over government intervention and the escalating tensions between the U.S. and China caused investing sentiment in Chinese equities to reach multi-year lows.
However, the situation is completely different in 2024, with analysts pointing to a strong rally in Chinese stocks. According to Goldman Sachs analysts, a potential 40% increase in Chinese A-share valuations is possible. Similarly, UBS upgraded its outlook on the MSCI China Index (NASDAQ:MCHI) and Hong Kong stocks to overweight. Hence, with a more robust risk appetite and a more conducive investing climate, here are three Chinese stocks to wager on now.
Alibaba (BABA)
Chinese tech giant Alibaba (NASDAQ:BABA) has been a difficult stock to back in recent years. Its stock has nosedived over the past three years, shedding 65% due to regulatory roadblocks in China and broader economic uncertainties. Consequently, BABA stock is now an eye-watering 74% below its all-time high price of $317.14. However, with the tailwinds in the Chinese economy and BABA’s strategic initiatives to boost growth, BABA stock presents itself as an excellent value play.
BABA faces stiff competition in its domestic eCommerce market yet remains highly lucrative. According to Statista, the Chinese eCommerce market is expected to grow by 10% through 2029. Moreover, BABA has effectively diversified its eCommerce business to target the international market. In its most recent quarterly results, its consolidated international growth jumped 44% to $4.02 billion.
Alibaba’s proactive approach to the cloud computing market is another linchpin for its long-term success. Estimates indicate that China’s public cloud market will double to $137.1 billion by 2028 from $69 billion in 2024. The advent of AI is set to revolutionize the cloud market, and Alibaba is seizing this opportunity. It recently implemented a significant price reduction for more than 100 core public cloud products, a move aimed at fueling AI growth in China.
BYD (BYDDF)
BYD (OTCMKTS:BYDDF) is a Chinese EV giant that stands head-and-shoulders above its competition. It’s been hot on the heels of EV pioneer Tesla, eventually surpassing it in vehicle deliveries last year. Moreover, despite the downturn in the EV space, its recent performances have solidified its leadership position in the niche.
BYD has triumphed in the intense price war within the EV market over the past few years. This is largely due to its unique battery technology, comprehensive production approach, and the benefits of its massive operational scale. In a recent press release, the EV juggernaut said it delivered a whopping 936,446 total passenger vehicles YTD. EV sales made up roughly 18%, a figure that continues to rise in contrast to the predominantly higher plug-in hybrid sales.
Furthermore, BYD announced its latest pickup truck last month, the “Shark.” It’s a direct competitor to Tesla’s Cybertruck, with many showing a preference for the Shark. Also, BYD has been making inroads in autonomous vehicle technology, having launched an AI-powered solution to conditionally automate driving. It seems like BYD is telling Tesla, “Anything you can do, I can do better.”
Baidu (BIDU)
AI took the stock market to breathtaking heights last year. However, with investors pricing in several years of growth, they’re now looking for tangible results. Companies making headway in developing and monetizing AI will likely emerge as long-term winners. In that context, Baidu (NASDAQ:BIDU) seems to be the most compelling AI story at this point.
Its 2024 Baidu AI Developer Conference unveiled numerous developments and updates, further establishing its dominance in the AI sector. The most obvious one was that its AI chat tool in Ernie Bot now has more than 200 million users. Moreover, over 80,000 clients used Qianfan, its foundation cloud-powered model platform, to develop 190,000 AI applications.
Furthermore, it launched a suite of zero/low-code development tools to enable users to develop AI agents, apps, and models through natural language. Also, it released five new iterations of the Ernie Chatbot to quicken response times while lowering inferencing costs effectively. These powerful developments are essentially part of Baidu’s strategy to make AI technology more accessible by effectively reducing costs while boosting computational efficiency.
On the date of publication, Muslim Farooque 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.
