U.S.-China trade tensions have stirred up again despite the partial deal agreed upon last Friday. Optimism surrounding the trade truce faded, primarily due to unrest in Hong Kong.
China recently criticized the United States for passing a bill at the House of Representatives, which would support protestors in Hong Kong. The House legislation is expected to review whether Hong Kong should be separate from China, and if it deserves a special trading status under U.S. rules and regulations.
Lest we forget, the Hong Kong international airport, known to be one of the busiest cargo airports, was shut down some time back due to heavy protests. In fact, almost 5,000 protestors had flooded the airport, leading to cancellation of many flights. Protestors have been opposing a proposal that would allow extradition to mainland China, something that would threaten their judicial protection.
China, in the meantime, has condemned the bill as “arrogant and dangerous,” and accused U.S. lawmakers of a political plot to spoil China. Beijing has now warned that it may resort to retaliatory measures if the legislation gets implemented.
President Trump, in the meanwhile, has said that China can only buy $40 billion to $50 billion of U.S. agriculture products — something that had been agreed on in the phase one trade deal – provided there is a rollback of $50 billion in tariffs.
Such developments no doubt have hampered the progress made in the protracted trade issue, impacting the global economy and squeezing corporate profits. But, investors shouldn’t freak out! Once the miserable trade environment clears, the negativity shrouding China will take a backseat. But, if you still don’t trust what’s happening on the trade front, there are various reasons to place your bets on China stocks.
Let’s admit, China is the second-largest economy in the world, as is its stock market when measured by market-cap. Needless to say, it has huge state-run energy players like Sinopec. All these show that despite odds, the China market is growing and if you are a long-term investor, Chinese stocks must be part of your portfolio.
Skeptics may argue that China’s GDP growth has touched the lowest level this year in almost three decades. Then again, it is still expanding at an astounding 6% to 6.5%, more than other major emerging economies like India and also developed nations like the United States and Japan.
There is also a direct link between London and Shanghai stock exchange, created to help both Western and Chinese investors trade on the counterpart’s stock market. This means that structural hazards related to investments in China stocks are falling apart.
Thus, the next obvious question is which are the best China stocks to keep an eye on? Here’re three —
JD.com, Inc. JD is an e-commerce company in the People’s Republic of China. The stock has done pretty well through the year. Its shares are up 49.2% on a year-to-date basis, more than the Internet - Commerce industry’s rally of 18.2%. In fact, its shares are up from $20.31 on Jan 2 to $31.24 at the close of Oct 16.
JD may be a distant second to Alibaba Group Holding Limited BABA, but it’s fast catching up in the online segment. JD also has diversified its business and invested heavily in growing fields such as logistics infrastructure. Such diversification has certainly paid off.
JD recorded operating income of $330.2 million for the quarter ended Jun 30. JD had reported a loss in the same period a year ago.
JD, by the way, flaunts a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has moved up 39.7% over the past 90 days. The company’s expected earnings growth rate for the current year is 179.4% against the industry’s estimated decline of 5.7%.
Baidu, Inc. BIDU provides Internet search services in China and internationally. It operates through two segments, Baidu Core and iQIYI. No doubt, the ongoing trade war and decelerating global economy have taken a toll. Its shares have declined 31.7% so far this year, in contrast to the Internet - Services industry’s rise of 4.3%.
Even though it has hit a rough patch, it does provide an excellent entry point for investors. It has started to venture into the AI space. It is also investing significantly in Apollo, its open-source autonomous vehicle technology platform, which should fetch the company a healthy return on investment.
Needless to say, its online video platform iQIYI has a commanding market share in China. During the second quarter, iQIYI had more than 100 million subscribers, showing a 50% year-over-year increase. And since iQIYI constitutes the bulk of Baidu’s revenues, such developments are surely encouraging. In fact, the company’s expected earnings growth rate for the next year is 35.2%, higher than the industry’s projected rally of 24.4%.
Baidu currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 16.6% over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
SINA Corporation SINA operates as an online media company in the People's Republic of China and internationally. The company operates SINA.com, an online media property that provides region-focused format and content.
SINA is poised to gain from the growing popularity of Weibo and a robust mobile user base in China. Moreover, the company’s fin-tech businesses are expected to drive non-advertising revenues. In its latest quarterly results, non-advertising revenues increased 19.4% year over year to $99.4 million, boosted by robust performance of Weibo's live streaming business and higher revenues generated from fin-tech businesses.
SINA has a Zacks Rank 2. The Zacks Consensus Estimate for its current-year earnings has moved up 1.7% over the past 60 days. The company’s expected earnings growth rate for the next year is nearly 21%. What’s more, its shares have gained 6.2% so far this month, in contrast to the Internet - Content industry’s decline of 1%.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.50% per year. So be sure to give these hand-picked 7 your immediate attention.
See them now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
JD.com, Inc. (JD) : Free Stock Analysis Report
Sina Corporation (SINA) : Free Stock Analysis Report
Baidu, Inc. (BIDU) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research