August 12, 2022

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China Stocks Rebound Powerfully As Beijing Signals Support| Investor’s Business Daily

Hundreds of Chinese companies are listed on U.S. markets. But which are the best Chinese stocks to buy or watch right now? JD.com (JD), NetEase (NTES), Li Auto (LI), Xpeng (XPEV) and BYD Co. (BYDDF).

China is the world’s most-populous nation and the second-largest economy with a booming urban middle class and amazing entrepreneurial activity. Often dozens of Chinese stocks are among the top performers at any given time, across an array of sectors.

On March 16, Beijing signaled support for Chinese companies listed in the U.S. It also announced that a crackdown on internet giants will end “as soon as possible.”

The news sent U.S.-listed stocks, especially tech names, skyrocketing this week.

China’s crackdowns on a wide array of industries have hammered Chinese stocks for more than a year. Tencent Holdings is expected to get a major fine soon. But if that marks the end of a crackdown it would be a huge relief.

Fears that Beijing or Washington would force Chinese companies to delist from U.S. markets has also been a major concern.

Delisting fears recently revived as the SEC identified five U.S.-listed Chinese stocks that it could delist, eventually, if they don’t comply with U.S. auditing laws. On March 16, Chinese and U.S. regulators are moving toward cooperation deal plan, state media said, citing a financial stability meeting.

Just getting supportive rhetoric from China about stocks was a bullish signal.

However, even if a tech crackdown and delisting fears recede, there are still major concerns. China is reimposing sweeping Covid restrictions as it faces its biggest coronavirus outbreak since early 2020. It’s locked down southern tech and supply chain hub Shenzhen, with some 17.5 million people, through March 20, with varying restrictions on many key parts of the country.

China’s homegrown vaccines are far less effective than the mRNA-based Pfizer (PFE) and Moderna (MRNA) vaccines, especially vs. the omicron variant.

Finally, Chinese stocks are still struggling amid an ongoing market correction, as growth and highly valued growth names are hardest hit.

Best Chinese Stocks Across Many Industries

As the world’s largest internet market, it’s no surprise to see big growth from China stocks focusing on e-commerce, messaging or mobile gaming. Notable Chinese internet stocks include:

In electric vehicles, several Chinese companies are becoming serious rivals to Tesla (TSLA) in the world’s biggest auto market.

Several Chinese financial firms or brokerages listed in the U.S.

  • Futu Holdings (FUTU)
  • Up Fintech Holding (TIGR)
  • 360 Digitech (QFIN)
  • Noah Holdings (NOAH)

Several China stocks are in solar power.

  • Daqo New Energy (DQ)
  • JinkoSolar (JKS)

For-profit education Chinese stocks are a notable nontech sector.

  • New Oriental Education (EDU)
  • Tal Education (TAL)
  • 17 Education & Technology Group (YQ)
  • Gaotu Techedu (GOTU), formerly known as GSX Techedu.

Don’t forget stocks in other fields, such as riding-hailing firm Didi Global (DIDI), beauty products maker Yatsen (YSG) or data-center operator GDS Holdings (GDS).


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China Stock Investing Via ETFs

One way to minimize individual China stock risks is via ETFs. Another advantage of buying ETFs is that a growing number of Chinese companies are listing in Hong Kong or Shanghai, instead of or in addition to the U.S.

KraneShares CSI China Internet ETF (KWEB) tracks major Chinese internet companies. Many Chinese stock holdings in the KWEB ETF are U.S.-listed or traded, such as Alibaba stock, JD.com, Tencent, Pinduoduo and Bilibili, but KWEB also holds companies listed on Chinese markets. Direxion Daily FTSE China Bull (YINN) is a three-times levered ETF of the 50 largest companies listed in Hong Kong, including Alibaba, JD.com and Tencent stock, but its biggest weights are in financials. (The Direxion Daily FTSE China Bear (YANN) is a three-times levered ETF shorting Hong Kong’s biggest companies.)

Stock Market Trend Key

As always, investors should be following the overall stock market trend, adding exposure in confirmed uptrends and paring exposure or going fully to cash in corrections or bear markets. Right now the stock market is in a correction, though a rally attempt is underway.


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.


Best China Stocks To Buy: Key Ingredients

Focus on the best stocks to buy and watch, not just any Chinese company.

IBD’s CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.

Look for companies that have new, game-changing products and services. Invest in stocks with recent quarterly and annual earnings growth of at least 25%.

Start with those with strong earnings growth, such as Pinduoduo stock. If they’re not profitable, at least look for rapid revenue growth as with Xpeng. The best China stocks should have strong technicals, including superior price performance over time. But we’ll be highlighting stocks that are near proper buy points from bullish bases or rebounds from key levels.

Chinese stocks in general are out of favor now, with the possible exception of EV stocks. While Chinese electric vehicle makers are not immune to regulatory pressures, Beijing appears to want to foster the domestic industry.


Why This IBD Tool Simplifies The Search For Top Stocks


Best Chinese Stocks To Buy Or Watch

Company Ticker Industry Group Composite Rating
Li Auto LI Auto Manufacturers 72
NetEase NTES Computer-Software Gaming 70
BYD BYDDF Auto Manufacturers n.a.
JD.com JD Retail-Internet 52
Xpeng XPEV Auto Manufacturers 19

So let’s analyze these five top China stocks: Li Auto stock, NetEase stock, BYD stock, Xpeng stock and JD.com stock.

Li Auto Stock

Li Auto is one of several Chinese electric vehicle makers that trade in the U.S., competing with each other and Tesla (TSLA).

The company is flirting with being profitable consistently, at least on an adjusted basis. On Feb. 25, Li Auto reported Q4 earnings of 2 cents a share, flat vs. a year earlier and beating views for a small loss. Revenue also topped views.

Li Auto has seen huge sales growth from its one current model, the Li One SUV. The Li One is actually a hybrid, with a small gasoline engine to extend its range.

Li Auto delivered 8,114 Li One hybrid SUVs last month, up 266% vs. a year earlier. But that’s down from 12,268 in January and 14,087 in December. The Chinese New Year likely affected EV sales in February, while a 30% EV subsidy cut on Jan. 1 depressed sales last month and boosted December purchases.

Li Auto is expected to unveil a second, larger hybrid SUV in Q2.

After a huge run from its July 2020 IPO to a record 47.70 on Nov. 24, 2020, Li Auto stock plunged to 15.98 in May.

Shares broke out in early December from a late 2021 bottoming base within that larger consolidation, but that quickly failed.

After rebounding in February, shares sold off hard in March to their lowest levels since last May.

Li stock surged 31% on March 16, part of a big week that sent shares soaring back above their 50-day line.

The automaker has a dual listing on the Hong Kong exchange.

Li stock has a 72 IBD Composite Rating out of a best possible 99.

Bottom line: Li Auto stock is not a buy.

NetEase Stock

NetEase is a Chinese mobile gaming giant.

It’s profitable, but growth has been spotty in recent quarters amid a Chinese government crackdown on video games. NetEase earnings surged 333% in the fourth quarter vs. a year earlier, with revenue growth picking up to 27%.

NetEase stock, like many other Chinese internets, has struggled over the past year. NTES stock peaked at 134.33 in February 2021, tumbling to 77.79 last August. Shares rallied to 118.19 on Nov. 22, right as the Nasdaq peaked, then tumbled back below its 50-day and 200-day lines.

Shares hit a 22-month low on March 14, but soared 26% on March 16. NetEase rose sharply this week.

Bottom line: NTES stock is not a buy.

BYD Stock

BYD Co. is the biggest pure-play Chinese EV maker, making electric cars and buses, as well as many hybrids. It’s also a major EV battery maker. Warren Buffett’s Berkshire Hathaway (BRKB) is a longtime investor.

Notably, BYD is profitable, in sharp contrast to Li Auto, Nio and Xpeng Motors. BYD’s Q3 profit fell vs. a year earlier, while revenue rose modestly.

BYD sold 88,283 new energy vehicles in February, up 753% vs. a year earlier. That’s modestly lower than January’s 93,168 NEVs and December’s 93,945. In February, the China New Year and Beijing Olympics slowed EV and auto sales generally, while the 30% subsidy cut on Jan. 1 affected many rivals’ January sales significantly.

BYD is expected to show strong sequential gains in the coming months, with new factories, models and markets.

The Shenzhen lockdown will affect BYD production to some degree, the company said.

February’s NEV total included 87,473 passenger vehicles, up 501% vs. a year earlier. Of those 43,173 were pure electrics, up 451% vs. a year earlier. Plug-in hybrids skyrocketed 1,836% to 44,300.

BYD continues to slash sales of its traditional gas-powered cars. They fell to 2,759 in February.

BYD on Feb. 11 signaled a new 2022 sales target of 1.5 million vehicles, vs. a prior 1.1 million-1.2 million goal announced late last year. But BYD already was running just above a 1.1 million run rate in December-January.

BYD launched the Yuan Plus in China on Feb. 19. The compact SUV also has begun pre-sales in Australia as the Atto 3, entering that market. The Yuan Plus also will enter the Singapore market. Exports are likely to be a big part of BYD’s future, as production continues to ramp up sharply.

BYD will likely unveil several new models next month, including the BYD Seal, a Model 3. Those EVs and PHEVs will likely go on sale by mid-year.

Like Nio and Xpeng, BYD began selling EVs in Norway in late 2021, starting with the Tang SUV.

BYD reportedly will unveil a new premium brand in the first half of 2022, starting with a luxury SUV crossover.

Toyota reportedly will make a small EV car for the China market in late 2022, using BYD Blade batteries. It’s possible that BYD will play a big role in Toyota’s new, sweeping EV push in the coming years.

Meanwhile, BYD Semiconductor has won regulatory approval for an IPO listing in Shenzhen.

Shares broke out of a double-bottom base with a 35.35 buy point in Oct. 15, then kept running. BYD stock hit a record 41.24 in early November, but sold off, tumbling below the 50-day line. Shares closed below their 200-day line on Jan. 24.

BYD stock plunged to a nine-month low on March 14, but rebounded powerfully on March 16 as part of a huge week.

BYD is listed in Hong Kong and trades over the counter in the U.S. So the BYDDF stock chart is prone to lots of little gaps up and down. But it also means that BYD is at not at threat of a U.S. delisting.

Bottom line: BYD stock is not a buy.


Tesla Vs. BYD: Which Booming EV Giant Is The Better Buy?


Xpeng Stock

Xpeng makes the G3 small SUV, the P7 sedan and the smaller P5 sedan. The P5 sedan, officially launched in mid-September, is the first production car to come with Lidar. On Nov. 12, Xpeng unveiled the G9 SUV, saying it’s targeted for international markets. The fast-charging SUV is due to launch in Q3 2022.

The EV maker has now opened P5 reservations in Norway, Denmark, Sweden and the Netherlands. Xpeng already sells some G3 SUVs and P7 sedans in Norway.

Xpeng delivered 6,225 EVs in February, up 180% vs. a year earlier but down sharply from 12,922 in January and 16,000 in December. The Chinese New Year and 30% subsidy cut likely affected Xpeng.

XPEV stock peaked at 74.49 in November 2020, nearly tripling from an IPO base. Shares then tumbled to 22.73 in May 2021. But after rallying for a time, Xpeng stock formed a bottoming base, with a 48.08 buy point, with 50.50 as an alternate entry.

Xpeng stock roared above the 48.08 entry on Nov. 23 following earnings. Shares reversed lower on Dec. 1 following November deliveries. XPEV stock then plunged with EV peers on Dec. 2.

Shares sold off again on Dec. 3, diving below the no-longer-valid buy point and even the 50-day line.

XPEV stock reclaimed its 50-day line in the week ended Jan. 14, and just crossed a trendline entry. But shares quickly tumbled to below the 200-day line and beyond. Xpeng stock hit resistance at its 200-day line again before tumbling back in late February.

Shares in March skidded to their worst levels since late 2020, not far from all-time lows.

XPEV stock leapt 29% on March 16, part of a big week.

Bottom line: Xpeng stock is not a buy.

JD.com Stock

JD.com is a Chinese e-commerce giant. It’s showing a bit more fight than rivals such as Alibaba.

JD.com reported better-than-expected fourth-quarter earnings on March 10, while revenue was in line.

JD.com stock peaked at 108.29 on Feb. 17, 2021 and bottomed at 61.65 on July 25. Shares hit a multi-month high in November, but then tumbled until early January.

On Dec. 23, shares fell hard after Tencent Holdings (TCEHY) said it’ll slash its stake in JD.com to 2.3% from 17%, giving the shares to its investors. The two internet giants will maintain close business ties.

Shares gapped above their 200-day and 50-day lines on Jan. 20, as many Chinese internet giants rallied on monetary stimulus and other reported moves. But JD.com stock has tumbled to its worst levels since May 2020.

JD stock skyrocketed 39% on March 16, part of a big week. Shares are working toward their 50-day line again.

Bottom line: JD.com is not a buy.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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