Chinese stocks: is it worth taking their portfolio? Read in my article the features of the Chinese stock market, its advantages and risks.
According to the US stock exchange NASDAQ, shares of Alibaba Group Holding fell by 9.02% and are traded at $ 165.98 per share. JD.com shares fell 5.95% to $ 27.82. Baidu’s quotes did not fall as much – by 3.86% to $ 101.21 per share. NetEase shares lost 4.63%. At the close of trading the securities were worth $ 260.69 per share.
Restrictions from the USA
The administration of US President Donald Trump has begun discussing options on how to limit the flow of American investment in China. Options include delisting Chinese companies from the US stock exchanges, as well as restricting American access to the Chinese market through government pension funds. The exact plan of action has not yet been developed.
Still, it’s worth taking a close look at three well-known Chinese stocks: Bilibili (NASDAQ: BILI), JD.com (NASDAQ: JD), and Baidu (NASDAQ: BIDU).
1.Bilibili is a diversified technology company focused on Gen Z users in China. Its gaming business, which accounted for 45% of sales in the first nine months of 2020, licenses Sony Aniplex’s popular Fate / Grand Order and other games: Cygames’ Princess Connect.
Its value-added services segment, which generates most of its live streaming revenue, accounted for 32% of the company’s revenue. Another 14% of the company’s sales came from advertising, and the remaining 9% is mainly from the e-commerce business, which sells related products for video games and anime series.
Bilibili connects all of these businesses through a single ACG platform (anime, comics and games). The platform’s monthly active users grew 54% year over year to 197.2 million in the third quarter, while the total number of paying users grew 89% to 15 million.
Bilibiil’s revenue grew 71% year-over-year in the first nine months, driven largely by three-digit percent growth in its value-added services and advertising segments, and analysts expect revenue to grow 89% this year and another 47% next year. Bilibili isn’t profitable yet, but it has already attracted large investments from Tencent and Alibaba (NYSE: BABA).
2.Baidu, which owns China’s largest search engine, has traditionally been the weakest link in the BAT triumvirate, which includes Alibaba and Tencent. Its advertising business was struggling as Chinese internet users spent more time on WeChat, ByteDance’s Douyin (known as TikTok overseas) and other platforms.
At first glance, Baidu is still in trouble. Its ad revenue has declined year after year for six consecutive quarters, and its iQiyi (NASDAQ: IQ) video streaming unit, which previously compensated for that slowdown, also lost momentum as users spent more time on short video apps.
The company expects its fourth-quarter revenue to grow 4% year over year, indicating that its ad business has finally stabilized. Analysts expect Baidu’s revenue to remain unchanged throughout the year, but will grow 15% next year.
They also expect Baidu to focus on cutting costs, especially the cost of acquiring traffic for its main search engine, in order to raise its profits by 17% in FY2020 and another 11% in 2021. We should always be skeptical about analyst predictions, but the company’s efforts to expand the business ecosystem: mini-programs, DuerOS voice assistant, artificial intelligence services, Apollo unmanned platform and the takeover of JOYY YY Live can gradually diversify its core business from advertising.
Baidu also does not face any problems from antitrust laws, even when regulators take harsh measures against Alibaba and Tencent. Baidu shares have already surged more than 90% in the past 12 months as investors spotted these strengths, but they still trade at 26x forward gains and 4x their sales next year.
3.JD.com is the largest retailer in China and the second largest e-commerce company after Alibaba. Unlike Alibaba, which operates paid listing platforms as well as no inventory and fulfills orders with a logistics subsidiary, JD does inventory and fulfill orders through its own logistics network. JD’s business model is more capital intensive than Alibaba, but it protects shoppers from substandard and counterfeit products.
JD’s revenue grew 28% year-over-year in the first nine months of 2020, ending 441.6 million annual active shoppers, up 32% from a year ago. Most of this growth came from lower-tier cities in China, which attracted about 80% of new buyers in the third quarter.
JD’s margins have also increased thanks to economies of scale and investments in infrastructure and logistics. These investments have limited profits in previous years, but now they are cutting infrastructure costs, lowering acquisition costs and helping the company stay profitable. JD’s decision to offer its logistics platform as a service to other companies also contributes to higher profits.
These favorable factors boosted its adjusted net income by 45% year over year for the first nine months of 2020. Analysts expect its revenues and profits to grow 39% and 59%, respectively, for the full year. For fiscal 2021, they expect revenues and earnings to increase by another 23% and 38%, respectively, which is a steady growth rate for a stock that trades at 43x the forward profit.
These estimates, as well as Alibaba’s antitrust concerns, indicate that JD’s stock may still have enough upside potential after more than doubling in 2020.
A number of factors have had a beneficial effect on the stock prices of Chinese companies, including the fact that China has shown its resilience in the face of the COVID-19 pandemic and the first among the largest countries to return to economic growth, this has increased the confidence of both the Chinese themselves and investors in Chinese assets.
Do you have any investment experience? Which of the following companies would you invest in? Share your opinion in the comments below! I will be happy to answer any questions or submit your project to my team at Astorts Group for evaluation.
Alessandro Rocco Pietrocola is an entrepreneur and investor based in London and operating mainly in Europe, Asia and Oceania with main focus on UK, Baltic Countries, Russia, China, Hong Kong, Malaysia, Singapore, Middle East and New Zealand as area of interest! At the moment is the CEO of Astorts Group. He is an UK FCA (Financial Conduct Authority) Approved Person and is has great experience as director of regulated companies. He uses to dedicate part of his life to inspire others and help them achieve the most out of their life. Since he was 20, he had successfully founded and managed several companies operating in the field of management consulting, wealth management and fintech. He loves travelling, he is a cigars lover, an amateur golfer and a dapper man.