In this article, we discuss 10 rebounding Chinese stocks to buy now.
On August 25, the Hang Seng index rose 3.6% to close at 19,968.38, reporting its largest gain since late April. Similarly, the blue chip CSI300 Index climbed 0.8% to 4,116.24, while the Shanghai Composite Index gained roughly 1%, closing at 3,246.25. The market sentiment improved when China’s State Council said that it would allot a fiscal relief package to help the economy recover from the mortgage crisis, COVID-19 outbreaks, and the heat wave.
The Chinese government allowed about 300 billion yuan in policy bank financing tools, and roughly 500 billion yuan in local government special bonds. Similarly, policies are being set in place to promote jobs and stabilize the labor market. Hong Kong’s Hang Seng TECH Index jumped 6% on August 25, marking the most significant one-day percentage gain in about four months, supported by the successful Sino-US audit agreement. The yuan was also protected against other currencies, recovering from a two-year low against the dollar, driven by firmer-than-anticipated state guidance and policies.
According to news platform Business Recorder, Linus Yip, chief strategist at First Shanghai Securities Ltd, said that the latest softness in the stock market “released selling pressure, creating room for a rebound that was triggered by news of fresh stimulus”. Some of the most notable rebounding Chinese stocks to buy now include Pinduoduo Inc. (NASDAQ:PDD), JD.com, Inc. (NASDAQ:JD), and Futu Holdings Limited (NASDAQ:FUTU).
Our Methodology
We selected the Chinese securities that have posted share price gains in the last month as of August 30. We have ranked the list according to the hedge fund sentiment around the stocks as of the second quarter of 2022, using Insider Monkey’s Q2 database of 895 elite hedge funds.
Rebounding Chinese Stocks to Buy Now
10. China Automotive Systems, Inc. (NASDAQ:CAAS)
Number of Hedge Fund Holders: 2
Share Price Gain in the Last Month as of August 30: 43.67%
China Automotive Systems, Inc. (NASDAQ:CAAS) is headquartered in Jingzhou, operating as a manufacturer and seller of automotive systems and components in China. On August 12, China Automotive Systems, Inc. (NASDAQ:CAAS) reported Q2 GAAP earnings per share of $0.31. The revenue of $127.2 million climbed 5.5% year over year. The management raised its FY 2022 revenue guidance from the prior estimate of $490 million to $500 million.
In late May, Greenridge analyst William Gregozeski maintained a Buy rating on China Automotive Systems, Inc. (NASDAQ:CAAS) but lowered the price target on the shares to $6 from $7 after the Q1 results. The analyst observed that the pandemic-driven lockdowns in China and ensuing supply chain issues will potentially impact the company’s results in 2022. However, China Automotive Systems, Inc. (NASDAQ:CAAS) has rebounded significantly over the last month, gaining close to 44% as of August 30.
According to Insider Monkey’s data, China Automotive Systems, Inc. (NASDAQ:CAAS) was part of 2 public hedge fund portfolios at the end of Q2 2022, with collective stakes worth $1.16 million, compared to the same number of funds in the earlier quarter, holding stakes in the company valued at $1.4 million. In Q2, Jim Simons’ Renaissance Technologies and Israel Englander’s Millennium Management were bullish on China Automotive Systems, Inc. (NASDAQ:CAAS).
In addition to Pinduoduo Inc. (NASDAQ:PDD), JD.com, Inc. (NASDAQ:JD), and Futu Holdings Limited (NASDAQ:FUTU), China Automotive Systems, Inc. (NASDAQ:CAAS) is one of the Chinese stocks that has rebounded recently.
9. Futu Holdings Limited (NASDAQ:FUTU)
Number of Hedge Fund Holders: 9
Share Price Gain in the Last Month as of August 30: 11.73%
Futu Holdings Limited (NASDAQ:FUTU) is a Hong Kong-based online brokerage and wealth management platform that offers trading, clearing, settlement, margin financing, and securities lending services. Futu Holdings Limited (NASDAQ:FUTU) stock climbed on August 26 when Chinese authorities announced a preliminary agreement that will authorize U.S. auditors to audit New York-listed Chinese companies, in compliance with The Public Company Accounting Oversight Board. In the last month as of August 29, the stock has gained close to 12%.
On August 14, BofA analyst Emma Xu reaffirmed a Buy recommendation on Futu Holdings Limited (NASDAQ:FUTU) but lowered the price target on the shares to $51.50 from $60.60 ahead of the company reporting Q2 results on August 30. Historically, Futu Holdings Limited (NASDAQ:FUTU)’s earnings and share price have been more in sync with the performance of Chinese stocks than U.S. stocks, noted the analyst, who slashed 2022 to 2024 earnings estimates by 14%-16% to account for the macro environment.
According to Insider Monkey’s data, Futu Holdings Limited (NASDAQ:FUTU) was part of 9 hedge fund portfolios at the end of Q2 2022, compared to 11 funds in the last quarter. Chase Coleman’s Tiger Global Management held the leading stake in the company, comprising 1.5 million shares worth $79.15 million.
Here is what Tao Value has to say about Futu Holdings Limited (NASDAQ:FUTU) in their Q1 2021 investor letter:
“Futu is a new “Opportunistic” position. It is an HK based online brokerage & wealth management platform with deep roots in technology. Futu sits in the confluence of 3 strong favorable forces of Meteorology, Topography & Commander, yet was underpriced at the time of our entry. In terms of Meteorology, there is a huge addressable market of Chinese domestic middle to upper classes’ wealth being deployed to overseas assets allocation in the next decade. Additionally, the incumbents being disrupted are extremely weak in their digital transformation. On Topography, Futu’s user-centric product design built an intuitive front end and great user experience, while the digital native development framework built a solid & reliable back end (including a self-developed order routing & execution system for the HK market). This is a rare combination compared to both offline incumbents (who lack flashy front end & UX) & other new online disrupters (who lack solid infrastructure). On Commander factor, founder CEO Li Hua was a Tencent engineer in its early days with deep knowledge in product design and development. Li is said to be a fanatic product manager, to this day still at the front-line, alpha testing any new features. Based on analyses of these factors, I think Futu could compound its revenue at a very high rate with very high certainty and with strong operating leverage, putting our entry price very attractive compared to earning power in 3-5 years. Yet just as we finished building a small position, the price started to take off and more than tripled in a month. When such price action happens, it is obvious that Mr. Market has turned very euphoric to this name. I decided to trim but kept a reasonable position given its growth certainty.”
8. Tencent Music Entertainment Group (NYSE:TME)
Number of Hedge Fund Holders: 14
Share Price Gain in the Last Month as of August 30: 22.41%
Tencent Music Entertainment Group (NYSE:TME) is a Shenzhen-based company that provides digital music entertainment platforms for music streaming, online karaoke, and live streaming services in the People’s Republic of China. The stock has climbed 22.41% in the last month as of August 30. On August 15, Tencent Music Entertainment Group (NYSE:TME) posted a Q2 non-GAAP EPS of $0.10, exceeding market estimates by $0.02. The revenue came in at $1.03 billion, outperforming Wall Street consensus by $41.87 million. Revenues from music subscriptions were $315 million, representing an increase of 17.6% year-over-year. The paying users reached 82.7 million, up 24.9% year-over-year.
According to Insider Monkey’s data, 14 hedge funds were long Tencent Music Entertainment Group (NYSE:TME) at the end of Q2 2022, compared to 20 funds in the last quarter. John Overdeck and David Siegel’s Two Sigma Advisors held the leading position in the company, with approximately 7 million shares worth $34.6 million.
Here is what Saltlight Capital has to say about Tencent Music Entertainment Group (NYSE:TME) in its Q4 2021 investor letter:
“Marketplaces must overcome the two-sided problem from Cold Start (zero buyers and sellers) to the Allee Threshold by generating liquidity. There is strong inertia in the early stages that requires offsetting momentum. Energy and capital are the only controllable tools and then luck and timing play a role too.
There are countless ways to generate liquidity on platforms but in marketplaces, the first goal is to get a buyer to try the app/website. The succeeding goals are to buy…and then buy again and again.
Retention loops (product reviews, next purchase discounts etc) take the buyer on a journey from ‘trier’ to ‘habitual buyer’. At all stages, friction should be culled to lessen churn and preserve the lifetime value of the user.
Buyer acquisition
Buyer acquisition relies on a funnel. The predominant (and most expensive) method is to advertise on typical platforms. Alternatively, there are more capital-efficient methods used by some platforms where they leverage their existing user bases or make a deal to use another platform.
Use other networks: In China, Tencent (a portfolio company) made investments in early-stage platforms and offered preferential access to its social media network for the privilege. This gave the startup access to hundreds of millions of potential Chinese customers at a low acquisition cost.”
7. TAL Education Group (NYSE:TAL)
Number of Hedge Fund Holders: 17
Share Price Gain in the Last Month as of August 30: 37.09%
TAL Education Group (NYSE:TAL) is a Beijing-based company that offers K-12 after-school tutoring services in the People’s Republic of China. On July 29, the company posted a Q1 non-GAAP loss per share of $0.03 and a revenue of $224 million, down about 84% year over year. All things considered, the stock has gained quite a lot recently and is up 37%% during the last month as of August 30.
According to Insider Monkey’s data, 17 hedge funds were long TAL Education Group (NYSE:TAL) at the end of June 2022, with combined stakes worth $116 million, compared to 14 funds in the prior quarter worth $76.7 million. Run Ye, Junji Takegami, and Hoyon Hwang’s Tiger Pacific Capital is the largest stakeholder of the company, with 9.25 million shares worth $45 million.
Here is what Tao Value has to say about TAL Education Group (NYSE:TAL) in its Q4 2021 investor letter:
“Looking at the value destruction, TAL Education (TAL) is one of the most painful losses. Although the company is part of the “Mindful Compounder” bucket, it impaired by 95%. If anything, it is a heavy price paid for learning that stock returns are driven by more than business and market factors, but also societal factors. I personally think having 4 out of the 5 top value destructions being recently started positions in Chinese stocks is a bit biased, as the market may have overreacted the most to anything China-related recently.”
6. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Number of Hedge Fund Holders: 22
Share Price Gain in the Last Month as of August 30: 7.42%
New Oriental Education & Technology Group Inc. (NYSE:EDU) was founded in 1993 and is headquartered in Beijing. The company provides private educational services in China under the New Oriental brand. Despite registering an operating loss for Q2, as well as revenues declining YoY, the company said in this fiscal year, the overseas test preparation and overseas study consulting businesses increased by 6% and 16% year over year, respectively. The board of directors authorized the repurchase of shares worth up to $400 million during the period from July 28, 2022 through May 31, 2023.
On July 29, BofA analyst Lucy Yu upgraded New Oriental Education & Technology Group Inc. (NYSE:EDU) to Buy from Neutral with a price target of $36.60, up from $18.80. Fiscal 2023 is likely to “market a year of a new start,” the analyst told investors. The present share price is in line with the firm’s new cash and does not factor in a rebound from the March quarter trough, contended the analyst.
According to Insider Monkey’s data, 22 hedge funds were bullish on New Oriental Education & Technology Group Inc. (NYSE:EDU) at the end of the second quarter of 2022, with combined stakes worth $721.3 million, compared to 23 funds the prior quarter worth $260 million. Seth Klarman’s Baupost Group is the largest stakeholder of the company, with 8 million shares worth about $163 million.
Like Pinduoduo Inc. (NASDAQ:PDD), JD.com, Inc. (NASDAQ:JD), and Futu Holdings Limited (NASDAQ:FUTU), New Oriental Education & Technology Group Inc. (NYSE:EDU) is on the radar of smart investors as Chinese equities rebound.
Here is what Polen International Growth has to say about New Oriental Education & Technology Group Inc. (NYSE:EDU) in its Q3 2021 investor letter:
“The quarter’s leading detractors were Chinese companies that were impacted by the CCP’s regulatory crackdown and liquidity concerns at property developer Evergrande. New Oriental Education—the largest provider of private educational services in China—moved sharply lower in July after policymakers implemented new rules which effectively turned Chinese tutoring companies into non-profits. Looking at New Oriental Education, we closed our position as soon as government policy became clear and used the proceeds to allocate to existing holdings.”
5. Melco Resorts & Entertainment Limited (NASDAQ:MLCO)
Number of Hedge Fund Holders: 24
Share Price Gain in the Last Month as of August 30: 9.61%
Melco Resorts & Entertainment Limited (NASDAQ:MLCO) was incorporated in 2004 and is headquartered in Central, Hong Kong. The company owns and operates casino gaming and resort facilities in Asia and Europe. The company bought back approximately 1.7 million American depositary shares worth about $8 million in Q2 2022. However, the Q2 results failed to meet Wall Street consensus due to COVID-19 lockdowns impacting demand. Regardless of slow demand, Melco Resorts & Entertainment Limited (NASDAQ:MLCO) stock has gained close to 10% in the last month as of August 30.
On July 5, Citi analyst George Choi reiterated a Buy recommendation on Melco Resorts & Entertainment Limited (NASDAQ:MLCO) but lowered the price target on the shares to $11 from $12.50. Most investors can look past the latest COVID outbreak in Macau and have confidence in the eventual EBITDA recovery in Macau, as per the analyst. The analyst said that the positive investor sentiment is supported by the “much-lower-than-anticipated regulatory risks” after the Legislative Assembly’s passing of the Gaming Law amendments in June. In the short-term, the analyst believes the license re-tender potentially scheduled for August could be the next positive catalyst to re-rate Macau stocks “to the next level”.
Among the hedge funds tracked by Insider Monkey, Ricky Sandler’s Eminence Capital is the leading stakeholder of Melco Resorts & Entertainment Limited (NASDAQ:MLCO) as of Q2 2022, with 11.5 million shares worth about $66.5 million. Overall, 24 hedge funds were long Melco Resorts & Entertainment Limited (NASDAQ:MLCO) at the end of June, compared to 26 funds in the prior quarter.
4. ATA Creativity Global (NASDAQ:AACG)
Number of Hedge Fund Holders: N/A
Share Price Gain in the Last Month as of August 30: 38.92%
ATA Creativity Global (NASDAQ:AACG) was founded in 1999 and is headquartered in Beijing, China. The company provides educational services through its training center network in China and internationally. Chinese stocks including ATA Creativity Global (NASDAQ:AACG) gained after the China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board penned an agreement where US-listed Chinese firms can be audited by US authorities. ATA Creativity Global (NASDAQ:AACG) stock has climbed about 39% in the last month as of August 30.
3. Luckin Coffee Inc. (OTC:LKNCY)
Number of Hedge Fund Holders: N/A
Share Price Gain in the Last Month as of August 30: 39.53%
Luckin Coffee Inc. (OTC:LKNCY) is a Xiamen-based company that serves freshly brewed coffee and non-coffee drinks in the People’s Republic of China. The stock gained about 5% on August 26 when the company reported that it fully redeemed $110 million worth of senior notes to help it lower its interest cost. In an approximate forecast, Quo Vadis Capital analyst John Zolidis sees roughly $1 billion in cash for Luckin Coffee Inc. (OTC:LKNCY) at the end of 2022, as well as a market cap of around $4.1 billion. On August 8, the company posted a Q1 revenue of RMB 3.3 billion, compared to RMB 1.9 billion in the prior year quarter. The stock has gained about 40% in the last month as of August 30.
2. Pinduoduo Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 41
Share Price Gain in the Last Month as of August 30: 36.75%
Pinduoduo Inc. (NASDAQ:PDD) is a Shanghai-based company that operates an e-commerce platform in China, selling apparel and accessories, mother and baby products, food and beverages, electronic appliances, furniture and household goods, sports and fitness items, and auto accessories. On August 29, Pinduoduo Inc. (NASDAQ:PDD) stock soared 14% on the back of solid Q2 results. The company earned about 93 cents per share on a revenue of $4.7 billion in the second quarter of 2022. Pinduoduo Inc. (NASDAQ:PDD) stock has surged about 37% in the last month as of August 30.
BofA analyst Joyce Ju on August 30 raised the price target on Pinduoduo Inc. (NASDAQ:PDD) to $89 from $77 and reiterated a Buy rating on the shares. The company posted “robust” Q2 results with primary marketplace revenue growth climbing to 49% year-over-year, the analyst told investors in a research note. The analyst lifted estimates to factor in rapid growth, greater monetization, and higher leverage.
According to Insider Monkey’s data, 41 hedge funds were bullish on Pinduoduo Inc. (NASDAQ:PDD) at the end of June, up from 36 funds in the preceding quarter. Rajiv Jain’s GQG Partners is the leading stakeholder of the company, with 6.15 million shares worth about $381 million.
Here is what Tao Value has to say about Pinduoduo Inc. (NASDAQ:PDD) in its Q4 2021 investor letter:
“On the detracting side, one of our largest detractors includes Pinduoduo (ticker: PDD). Pinduoduo (PDD) reported the second consecutive GAAP profit quarter yet missed on the revenue due to nation-wide consumption weakness & scaled back Sales & Marketing efforts. Market disliked it and the stock price plunged on the earnings. In my opinion, the accounting profits proved the original thesis of using S&M to acquire users and using great shopping experience to keep them. After realizing the first growth curve, Pinduoduo now shifted its focus & investment to agriculture. It is still very early, but the reduced size due to price drop warrants a position to watch and continue to grow with such a team with a strong culture.”
1. JD.com, Inc. (NASDAQ:JD)
Number of Hedge Fund Holders: 62
Share Price Gain in the Last Month as of August 30: 4.74%
JD.com, Inc. (NASDAQ:JD) is a Beijing-based company that offers computers, consumer electronics, home appliances, and general merchandise products through online retail channels. In Q2 2022, the company earned an adjusted 61 cents per share on $40 billion in revenue, up 5.4% year-over-year. The company added almost 50 million customer accounts in the past 12 months. JD.com, Inc. (NASDAQ:JD) stock has gained about 5% in the last month as of August 30.
Benchmark analyst Fawne Jiang on August 24 raised the price target on JD.com, Inc. (NASDAQ:JD) to $109 from $106 and kept a Buy rating on the shares. JD.com, Inc. (NASDAQ:JD) reported above consensus Q2 results, featuring a solid bottom-line beat and a Q3 retail growth guidance slightly under expectations due to ongoing macro headwinds, the analyst told investors. Compared with its peers, the analyst believes the drivers for JD.com, Inc. (NASDAQ:JD)’s margin improvements are sustainable.
According to the second quarter database of Insider Monkey, 62 hedge funds were bullish on JD.com, Inc. (NASDAQ:JD), up from 59 funds in the prior quarter. Chase Coleman’s Tiger Global Management is the largest stakeholder of the company, with 30.5 million shares worth about $2 billion.
Here is what Argosy Investors has to say about JD.com, Inc. (NASDAQ:JD) in its Q3 2021 investor letter:
“We sold JD as a result of the furor over Chinese stocks during the quarter. We had been concerned about China’s lack of respect for investor rights for some time, and Beijing has become significantly more aggressive in asserting itself of late. In addition, the legal structure Chinese companies use to come public in the U.S., a Cayman Islands shell corporation leaves American investors with an unsure path to recovering value should these companies cease to trade on U.S. exchanges. Because of the uncertainty, we exited our position in JD completely. We still love JD’s long-term prospects, but we cannot estimate the legal/regulatory risk associated with these companies anymore. More broadly, we are freeing up cash for some other positions we already own which have declined in this market, and after additional review, remain attractive.”
You can also take a look at Best Value Stocks to Buy for the Next Decade and Best Cheap Tech Stocks.
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Disclosure: None. 10 Rebounding Chinese Stocks to Buy Now is originally published on Insider Monkey.
