Today, Zacks Investment Ideas feature highlights Alibaba BABA, iShares China ETF FXI, Futu Holdings FUTU, New Oriental Education EDU and Pinduoduo PDD.
Diamonds in the Rough: 3 Chinese Stocks to Consider
China’s Economic Woes
If you have been paying attention to global markets, it’s no secret that the Chinese economy is struggling. Over the past five years, the Chinese government caused uncertainty and turmoil in its economy by cracking down on big tech stocks such as Alibaba and employing strict “zero COVID” lockdown policies, which crushed the economy. To make matters worse, exports have slowed dramatically while an overbuild of infrastructure has caused a massive housing bubble.
With more than half of Chinese household wealth stuck in real estate, the collapsed housing market has caused an economic meltdown to spread through the Chinese economy like wildfire. Unfortunately, for investors, equities markets have not escaped. In fact, the iShares China ETF,a proxy for large-cap Chinese equities, is still well off of its climactic highs from late 2007!
Finding Opportunity Amidst Crisis
Though struggles remain in Chinese equities, investors may want to consider certain areas of the market, because it offers:
· Diversification: Chinese markets offer a liquid, non-correlated alternative to US equities.
· A Contrarian Investment: Though China’s economy is nowhere near strong, the worst may be in, and markets tend to bottom when bad news hits a fever pitch.
· Mean Reversion Potential: At some point, Chinese equities will recover. Because of the multi-year meltdown they have endured, the mean reversion potential alone might be worth considering.
Stocks to Watch
Despite the multi-year bear market in Chinese equities, 3 stocks are performing well and are likely to continue.
Futu Holdings is a Chinese fintech company that provides a range of online brokerage and wealth management services to retail investors in China and other Asian markets.Despite a weak equity market, FUTU’s quarterly EPS has grown consistently.
Looking ahead, Zacks Consensus Estimates suggest that earnings will grow at a healthy 39.08% clip for full-year 2023.
New Oriental Education is the leading Chinese education company. EDU provides private education services, English language training, career training, online education, and much more. Anyone familiar with Chinese culture understands that education is taken very seriously and is an integral part of life. Because of this, its no surprise that EDU is performing well. EDU earns a best possible Zacks Rank #1 (Strong Buy).
Another sign of strength is EDU’s price and volume action. While the general equities market is stuck near 52-week lows, EDU is trending higher and finding support at its 10-week moving average.
Pinduoduo is a Chinese e-commerce platform that offers a unique and innovative online shopping experience. Unlike traditional e-commerce platforms, PDD is gaining steam by offering group buying (users can form groups with friends and buy in bulk for discounts), “gamified shopping”, and a mobile-first approach. Though PDD was founded well after Alibaba and JD.com, the two largest Chinese e-commerce platforms, PDD is more attractive due to its lightning-fast growth. PDD grew revenue by 54% last quarter (compared to 5% for BABA & -1% for JD). Clearly, PDD’s unique approach is working – because of that, it is the top Chinese e-commerce stock to own.
New Oriental Education & Technology Group, Inc. (EDU): Free Stock Analysis Report
iShares China Large-Cap ETF (FXI): ETF Research Reports
Alibaba Group Holding Limited (BABA): Free Stock Analysis Report
PDD Holdings Inc. (PDD): Free Stock Analysis Report
Futu Holdings Limited Sponsored ADR (FUTU): Free Stock Analysis Report
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