Chinese stocks are growing in dominance in the U.S. markets. Over the past few years, we have seen how the companies have attracted U.S. investors and returned them with profits.
Though 2021 has been a painful year for shareholders of Chinese stocks in general. China’s regulatory scrutiny has been a tough ask for many, especially tech companies. Despite that, things are expected to improve for the Chinese stocks in 2022.
With China emerging as the new economic superpower, Chinese companies have a big role to play in its development. We believe in the next 10 years, Chinese stocks will become as prominent as Apple, Microsoft, and Facebook.
Chinese companies account for some of the biggest names across multiple industries. That includes tech, semiconductors, financial technology, and automobiles. Investors need exposure to these sectors. And, Chinese stocks offer attractive valuations based on their growing market share. Hence, it is a great buying opportunity.
Li Auto (LI)
Li Auto (LI) is one of several Chinese EV makers that trade in the U.S., competing with Tesla and other EV makers. Flirting with profitability, Li Auto has seen huge sales growth from its current model, the Li-One SUV. The Li-One is actually a hybrid, with a small gasoline engine to extend its range.
In October 2021, Li Auto delivered 7,649 electric cars, presenting a 107% growth from the prior-year quarter. In the third quarter, the company reported revenue of $780.4 million, presenting a 158.8% year-over-year growth. The company is making more deliveries each month.
In Jan. 2022, Li delivered 12,268 Li-One hybrid SUVs, an increase of 128% from Dec. 2021. A 30% EV subsidy cut took effect on Jan. 1, hitting many Chinese EV makers. The slightly earlier Lunar New Year vs. 2021 also may have slightly affected Chinese EV sales at the tail end of January.
Shares broke out in early December from a late 2021 bottoming base within that larger consolidation, but that quickly failed. The growing market share and production of the company are yet to ignite the investors to buy these Chinese stocks.
With the rise in electric vehicles around the world, Li Auto remains one of the best Chinese stocks to buy now. Recently, Citigroup highlighted the company’s growing position in China’s new energy vehicle market. The firm lifted its price target on Li Auto to $200, with a Buy rating on the shares.
NetEase (NTES) is a Chinese internet company providing services related to social media content, community, communications, and commerce. It’s profitable, but growth has been spotty in recent quarters amid a Chinese government crackdown on video games.
NetEase earnings rose 13% in the third quarter vs the previous year. While the revenue grew up by 25%. For the full year, analysts expect 21% EPS growth and project an 18% growth in 2022.
The stock dropped 17% in the last 12 months, and Citi analyst Alicia Yap on November 17 lowered the price target on NetEase to $136 from $142. However, she kept a Buy rating on the shares. According to the analyst, NetEase will remain as a defensive play in light of macro uncertainty impact on other internet verticals.
Despite the current circumstances, NTES stock is projected to rebound in 2022, given that it is one of the major Chinese internet players. Recently, Daiwa analyst John Choi highlighted that a ban on the metaverse is unlikely in China. However, the government is likely to take a more proactive approach to regulations and oversight. The analyst’s top picks for the success of the Chinese metaverse included NetEase.
The fact that NetEase has strong R&D capabilities, and has the capacity to launch immersive metaverse video games. Moreover, the stock is considered a popular growth play, and double-digit revenue growth is forecasted for the years to come. NTES looks like good Chinese stocks to buy considering its long-term growth.
XPeng (XPEV) is another popular Chinese EV maker. The company manufactures smart EVs integrated with AI and autonomous driving technologies. The group targets the mid-to-high-end segment. Currently, it offers three models: the P7 sports sedan, the P5 family sedan, and the G3 SUV.
Earlier in Jan., XPeng announced that it delivered 16,000 Smart EVs in December 2021, despite ongoing global supply chain challenges. The December deliveries represented a 181% increase year over year, demonstrating XPeng’s solid business momentum and execution capability. The demand for P7 was high which kept the momentum and also the production ramp of P5 models.
In 2022, Xpeng will expand its model portfolio. In the third quarter, its new model G9 SUV will come into the market. Furthermore, XPEV will soon make an entrance into the second-largest EV market. It already sells G3 SUVs in Norway, but now has plans to expand to Scandinavia. It will hopefully boost sales and make the share prices reach an all-time high.
Given the robust growth in the EV market, XPeng is well-positioned to increase sales in the current year. Over the long run, the company’s ambition in robotics, autonomous driving, and flying vehicles could create even more shareholder value than the EV business.
XPEV seems an attractive chinese stock to buy and hold for some time.
JD.com (JD) is a Chinese e-commerce giant. Just like another Chinese giant, the company has suffered due to Chinese regulations. However, it’s showing a bit more fight than rivals such as Alibaba.
JD.com earnings fell 2% in the latest quarter, while sales grew 32% to $33.9 billion. But those topped views, unlike many Chinese internet giants, including Alibaba. On Dec. 23, shares fell hard after Tencent Holdings said it’ll slash its stake in JD to 2.3% from 17%, giving the shares to its investors. The two internet giants will maintain close business ties.
What possible catalysts could move JD stock in the coming months? Well, the fundamentals are pretty solid. Recently, JD was ranked on the FORTUNE 2022 World’s Most Admired Companies list. The Chinese e-commerce giant was ranked No. 6 in the Internet Services and Retailing Category. Other companies listed in the top 8 industry ranking include Amazon, Alphabet, and Xiaomi – to name a few.
The company recently announced that it has teamed up with Canadian internet retail giant Shopify to expand its cross-border operations. This collaboration will help both the companies as online consumer spending on physical goods slowed in the world’s most populous economy. The partnership will unlock the huge potential of the Chinese market for global brands. Moreover, it will link Shopify’s millions of merchants around the world with JD’s 550 million active customers in China.
With all the developments, JD stock looks like a decent buy at the moment if you are interested in investing in Chinese stocks.
Tencent Holdings (TCEHY)
Tencent Holdings (TCEHY) is a Chinese multinational holding company. It is a market leader in the technology, entertainment, and gaming industries. In addition to being one of the most financially valuable global companies, Tencent Holdings leads several other markets. For instance, e-commerce, internet services, payment systems, smartphones, and video games are the few names where Tencent operates.
Tencent Holdings Limited is positioned to be the largest Chinese metaverse stock. That makes TCEHY a great investment option going forward. Although Tencent stock has dropped over 35% in the last 12 months, the company is poised for recovery in 2022 according to analysts.
Tencent has had approximately 125% growth in the last 5 years. Analysts believe that China’s metaverse market is expected to reach $30 billion in 2025. Tencent has a strong R&D and potential to launch immersive games in the metaverse. That makes it a leading force behind China’s metaverse market.
In the third quarter of 2021, Tencent Holdings reported revenue of $22 billion, up 13% year over year. The company also reported a 5% growth in revenues from online advertising. Barclays rates TCEHY stock as Overweight, with a price target of $84.