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.
But with China’s crackdowns a wide array of U.S.-listed Chinese stocks spanning many industries were hammered in 2021. Coronavirus restrictions, power shortages and global supply-chain issues have all weighed on Chinese companies.
There’s also always the risk the Chinese stocks that trade in the U.S. could be forced to delist, by either Beijing or Washington. But that wouldn’t affect BYD. Warren Buffett’s Berkshire Hathaway has a stake in the China EV and battery giant.
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.
Several China stocks are in solar power.
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.
Beijing Crackdown On Chinese Stocks
Investors should be aware of significant risks with investing in Chinese stocks. The authoritarian state and its regulators can impose sweeping restrictions, fines or bans on major companies, often with little notice or transparency.
That risk has been very apparent over the past year.
Alibaba ran afoul of regulators in late 2020, with regulators opening probes into internet platforms and suspending the Ant Group IPO. In April, China fined Alibaba $2.8 billion for anticompetitive actions and ordered it to change various practices.
But regulators also have gone after ride-hailing firms, video game makers, for-profit school operators, online delivery apps, Macau casinos and online brokers. On Dec. 14, Beijing levied fines vs. social media firm Weibo for publishing illegal content. China has signaled that it’ll take a dim view of new overseas listings, especially for internet and data-centric companies. Many big U.S.-listed Chinese companies already have secondary listings in Hong Kong.
Chinese Stock Delisting Risk
A late 2020 U.S. law could force Chinese companies to delist from U.S. markets. That threat isn’t imminent, and could be averted with negotiations between the Treasury Department and Beijing over accounting oversight. Still, it’s something that could loom large for China stocks in the coming years.
The SEC on Dec. 2, 2021 said it’s finalized a plan for moving ahead with that delisting law. As a practical matter, it could be years before delistings are an imminent threat. Still, it comes just days after Beijing denied a report that it was gearing up to largely end the structure of most overseas listings of Chinese firms.
China ride-hailing giant Didi Global (DIDI) said late on Dec. 2 that it will delist from U.S. exchanges and list instead in Hong Kong, further fueling delisting concerns.
China is tightening rules on overseas listings, but isn’t banning them outright. The securities regulator issued draft regulation to require companies listing overseas to follow domestic rules, including data privacy and cybersecurity.
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.
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.
Best Chinese Stocks To Buy Or Watch
|Company||Ticker||Industry Group||Composite Rating|
|Li Auto||LI||Auto Manufacturers||83|
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).
Flirting with profitability, 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 12,268 Li One hybrid SUVs last month, up 128% vs. 14,087 in December. A 30% EV subsidy cut took effect Jan. 1, hitting many Chinese EV makers. The slightly earlier Lunar New Year vs. 2021 also may have slightly affect China EV sales at the tail end of January.
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.
Li Auto stock reclaimed its 50-day line on Jan. 14, but fell back below that level on Jan. 18 and below its 200-day line on Jan. 21. On Jan. 25, shares hit a seven-month low. Shares surged last week to close just above their 200-day line.
Li Auto has a dual listing on the Hong Kong exchange.
Li stock has an 83 IBD Composite Rating out of a best possible 99.
Bottom line: Li Auto stock is not a buy.
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 rose 13% in the third quarter vs. a year earlier, with revenue up 25%. For the full year, analysts expect 21% EPS growth, with 18% in 2022.
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.
On Jan. 31, shares moved back above its 50-day and 200-day lines, but are slightly below those key levels again. NetEase stock could soon have a bottoming base with a 118.29 buy point. Investors might look to a trend line or around the 108 level for an early entry.
Bottom line: NTES stock is not a buy.
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 93,168 new energy vehicles in January, up 362% vs. a year earlier and essentially flat vs. December’s 93,945, despite the 30% subsidy cut on Jan. 1 that affected a lot of rivals.
January’s NEV total included 92,926 passenger vehicles. Of those 46,386 were pure electrics, up 221 vs. a year earlier. Plug-in hybrids skyrocketed 761% to 46,540.
BYD continues to slash sales of its traditional gas-powered cars. They fell to 2,254 in January vs. 22,223 a year earlier.
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.
BYD reportedly will unveil a new premium brand in the first half of 2022, starting with a luxury SUV crossover.
Like Nio and Xpeng, BYD has begun selling EVs in Norway, starting with the Tang SUV. Exports are likely to be a big part of BYD’s future, as production continues to ramp up sharply. BYD is gearing up to sell EVs in Australia.
Meanwhile, BYD Semiconductor has won regulatory approval for an IPO listing in Shenzhen.
BYD stock corrected nearly 52% from its January peak of 35.94 to its May 12 low of 17.41.
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 and are still trying to get back above that key level.
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.
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. Xpeng sells some G3 SUVs in Norway, and is expanding that to include some P7 sedans.
Xpeng delivered 12,922 EVs in January, up 115% vs. a year earlier but down from 16,000 in December. The 30% subsidy cut affected Xpeng.
January’s figures included 6,707 P7 sedans, 4,029 P5 cars and 2,186 G3 and G3i smart SUVs.
XPEV stock peaked at 74.49 in November 2020, nearly tripling from an IPO base. Shares then tumbled to 22.73 in May. 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.
After trading above and below that entry for several weeks, Xpeng stock roared back 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 have tumbled to below the 200-day line and beyond. Xpeng stock is starting to rebound.
Bottom line: Xpeng stock is not a buy.
JD.com is a Chinese e-commerce giant. 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 that topped views, unlike many China internets, including Alibaba.
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 fell right below those key levels on Jan. 21. Shares are just below those key levels.
JD.com was added to Hong Kong’s Hang Seng Index in December.
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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