Chinese stocks are in a bear market. The two largest Chinese internet companies have also entered bear market territory. And the talk of a potential trade war with the largest economy in the world has the Chinese concerned about the future of their economy.
So why in the world would you want to look at risky, high-beta Chinese internet stocks as potential investments right now? Well, there are two big bullish factors working in their favor.
The first is that Chinese internet stocks are some of the highest growth stocks in the world. When a company is growing revenue and ultimately the bottom line, its stock price also eventually moves higher.
Second, internet penetration in China is currently around 57%, which means there are another few hundred million people that will be coming online in the coming years. For comparison, internet penetration in the United States is more than 90%.
While not for the faint of heart, there are three high-beta Chinese internet stocks that I’m keeping a close eye on right now. All three hit highs earlier this year before joining in on the broader bear market. However, when it comes to volatile stocks, blood in the streets typically means it is time to take the contrarian view. Let me tell you a bit about each.
Risky Chinese Stocks to Buy: Baozun (BZUN)
Often referred to as the Shopify of China, Baozun (NASDAQ:BZUN) is down about 25% from its June all-time closing high and currently testing its 200-day moving average.
The company’s most recent earnings report, which came out on August 14, saw revenue increase 31% year-over-year. Non-GAAP net income also saw impressive growth, up 34% to $0.15 per American Depositary Share (ADS).
Baozun’s ability to make money from the growth of online retail in China is a huge opportunity, and as a result I see it climbing much higher in the years ahead.
Risky Chinese Stocks to Buy: Momo (MOMO)
Momo (NASDAQ:MOMO), which operates a mobile-based social media platform in China, has lost more than 30% of its value since closing at an all-time in mid-June.
The company is scheduled to report its quarterly numbers next week and Wall Street is expecting impressive growth — a 74% increase on the bottom line and a 54% pop on the top. That would come on the back of revenue growth in excess of 100% in fiscal 2017.
Similar to BZUN, MOMO is in the midst of testing its 200-day moving average. It appears to have held that level, and it could head back toward its 50-day average and beyond in the relative near term.
Risky Chinese Stocks to Buy: Huya (HUYA)
As a recent IPO, it shouldn’t be surprising that Huya (NYSE:HUYA) has been especially volatile recently. The stock experienced a rally of more than 200% after its market debut but then succumbed to a pullback of about 50%.
This company is known as the Twitch of China. And for those of you who don’t know, Twitch is an online streaming service owned by Amazon (NASDAQ:AMZN). The growth in eSports has HUYA well positioned to take advantage of the more than 440 million gamers in China, and I think it has a bright future ahead of it.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.