In this article, we discuss 10 stocks at risk from the slowing Chinese economy.
The Chinese economy is witnessing a sharp slowdown in growth as the collapse of the real estate market threatens to spread to other sectors already under heavy pressure due to the strict pandemic policies of the Chinese government. In an effort to deflect a looming recession, Beijing recently announced plans to add $44 billion in credit support to policy banks. The measures are aimed at increasing investment, boosting consumption, and helping keep economic activities on a steady course.
Some of the stocks expected to come under pressure amid these China uncertainties include Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS). Chinese premier Li Keqiang has also introduced other measures to jumpstart the Chinese economy. These include RMB 500 billion in funds for local governments and RMB 200 billion of bond issuance by state-owned electricity groups. The growth target for the Chinese economy, despite these measures, is 5.5% this year, the lowest in thirty years.
US investment advisors are also warning about the risks that a slowdown in China might have on the stock market. Investment bank Goldman Sachs projects the Chinese economy to grow by a modest 3% this year. Although the bank expects a government stimulus to offset sharp contraction in government revenue and support infrastructure investment growth, it forecasts that a weak property sector and headwinds to activity growth from local virus outbreaks will result in a sluggish Chinese economy this year.
Our Methodology
The companies that have deep links with the Chinese economy were selected for the list. The business fundamentals of these firms and the latest updates related to them are also discussed to provide some additional context. Data from around 900 elite hedge funds tracked by Insider Monkey in the second quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Photo by Markus Winkler on Unsplash
Stocks At Risk From Slowing Chinese Economy
10. XPeng Inc. (NYSE:XPEV)
Number of Hedge Fund Holders: 24
XPeng Inc. (NYSE:XPEV) makes and sells electric vehicles. On August 23, the firm posted earnings for the second quarter of 2022, reporting losses per share of $0.43, missing analyst expectations by $0.10. The revenue over the period was $1.1 billion, up more than 97% compared to the revenue over the same period last year. As EV competition heats up and the Chinese economy slows, the revenue and delivery guidance numbers of the firm for 2023 have taken a hit, falling short of analyst expectations.
On August 24, Citi analyst Jeff Chung maintained a Buy rating on XPeng Inc. (NYSE:XPEV) stock and lowered the price target to $27.87 from $51.59, noting that the pandemic, consumption downgrade, and supply chain challenges would weigh on the firm in the near-term.
At the end of the second quarter of 2022, 24 hedge funds in the database of Insider Monkey held stakes worth $618 million in XPeng Inc. (NYSE:XPEV), compared to 26 in the preceding quarter worth $783 million.
Just like Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS), XPeng Inc. (NYSE:XPEV) is one of the stocks feeling the heat of an economic slowdown in China.
9. NIO Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 25
NIO Inc. (NYSE:NIO) makes and sells smart electric vehicles. In addition to pressures related to a drop in EV demand in China due to a slowing economy, the company also faces headwinds from a potential delisting risk from the New York Stock Exchange in light of new US rules for Chinese firms with regards to independent audits. Ongoing supply chain concerns are also expected to weigh heavily on the stock, like other automakers, in the coming months. The fundamentals of the firm, though, have shown resilience under these pressures so far.
On August 23, Deutsche Bank analyst Edison Yu maintained a Buy rating on NIO Inc. (NYSE:NIO) stock with a price target of $45, noting that the overseas expansion of the firm was under-appreciated in the marketplace.
At the end of the second quarter of 2022, 25 hedge funds in the database of Insider Monkey held stakes worth $873 million in NIO Inc. (NYSE:NIO), compared to 26 in the preceding quarter worth $716 million.
8. NetEase, Inc. (NASDAQ:NTES)
Number of Hedge Fund Holders: 26
NetEase, Inc. (NASDAQ: NTES) provides interactive home entertainment services. On August 18, the firm posted earnings for the second quarter of 2022, reporting earnings per share of $1.22, beating estimates by $0.17. The revenue over the period was $3.5 billion, up over 12% year-on-year. The online gaming revenue of the firm showed weakness during the quarter as gaming sales across the world took a major hit. A slowing Chinese economy is expected to further impact gaming revenue in the coming months.
On August 19, Citi analyst Alicia Yap maintained a Buy rating on NetEase, Inc. (NASDAQ:NTES) stock and raised the price target to $140 from $132, appreciating the solid second quarter earnings of the firm.
Among the hedge funds being tracked by Insider Monkey, Bermuda-based investment firm Orbis Investment Management is a leading shareholder in NetEase, Inc. (NASDAQ:NTES), with 3.6 million shares worth more than $342 million.
7. Wynn Resorts, Limited (NASDAQ:WYNN)
Number of Hedge Fund Holders: 26
Wynn Resorts, Limited (NASDAQ:WYNN) is a Las Vegas-based corporation that owns and operates luxury hotels and casinos. The firm generates over 70% of revenue from the Macau region in China, and a slowdown in the Chinese economy will directly impact business in the region. The firm has already missed market estimates on revenue for the second quarter of 2022 by $72 million. In the coming months, COVID-related uncertainties in Macau will add to revenue pressures on the firm.
On August 10, Deutsche Bank analyst Carlo Santarelli maintained a Buy rating on Wynn Resorts, Limited (NASDAQ:WYNN) stock and lowered the price target to $85 from $92, noting that the firm had reported better than expected Las Vegas and Encore Boston Harbor metrics.
At the end of the second quarter of 2022, 26 hedge funds in the database of Insider Monkey held stakes worth $142 million in Wynn Resorts, Limited (NASDAQ:WYNN), compared to 32 the preceding quarter worth $269 million.
In its Q3 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Wynn Resorts, Limited (NASDAQ:WYNN) was one of them. Here is what the fund said:
“In the most recent quarter, we exited the Fund’s holdings in Wynn Resorts, Limited (NASDAQ:WYNN) due to: (i) ongoing COVID-19-related travel restrictions in China, Macau, and Singapore; and (ii) the Macau government’s announcement to tighten its casino regulatory oversight.”
6. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 45
Baidu, Inc. (NASDAQ:BIDU) provides internet search services. Although a slowing Chinese economy, pandemic pressures, and regulatory crackdowns by Beijing have impacted the shares of the firm in recent months, the stock has seen some respite in the past few weeks after US regulators signed a preliminary deal with Chinese regulators on audits to reduce the delisting risk of Chinese firms in the US. Baidu, Inc. (NASDAQ:BIDU) is one of the most valuable firms in China and could be one of the first-hit if a slowdown in the economy spreads to the tech sector.
On August 23, Macquarie analyst Esme Pau maintained an Outperform rating on Baidu, Inc. (NASDAQ:BIDU) stock with a price target of $188, noting that the firm was the leading search platform and artificial intelligence company in China.
At the end of the second quarter of 2022, 45 hedge funds in the database of Insider Monkey held stakes worth $2 billion in Baidu, Inc. (NASDAQ:BIDU), compared to 47 in the preceding quarter worth $1.5 billion.
Along with Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS), Baidu, Inc. (NASDAQ:BIDU) is one of the stocks that elite investors are monitoring as the Chinese economy slows.
In its Q1 2022 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and Baidu, Inc. (NASDAQ:BIDU) was one of them. Here is what the fund said:
“Although the initial reaction of the Chinese government was passive, it seems that the blacklist published by the SEC, which already includes companies as important as the technology giant Baidu, has shaken things up. Thus, at the beginning of April the CSRC (China Securities Regulatory Commission) announced possible changes in its regulation that would allow this inspection by foreign auditors, provided that the companies previously communicate to this body the state secrets that would be exposed, as well as the sensitive information that they might have to hand over, and the subsequent audit is carried out in a framework of collaboration with the CSRC. In short, a move in the direction desired by the SEC, although still far from the optimal result, that is, unrestricted access to information.
While these negotiations between the two regulatory bodies are progressing, Chinese companies have to decide how best to preserve their interests. In this regard, some companies are already listed on the Hong Kong stock exchange, as is the case of the three major technology companies (Alibaba Group, Tencent Holdings and Baidu, Inc. (NASDAQ:BIDU)).”
5. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 55
Starbucks Corporation (NASDAQ:SBUX) is a specialty coffee firm. Inflation and other macro pressures are already weighing on the stock and reports of a sharp slowdown in the Chinese economy are likely to result in a further slide in the share price. The company controls over 35% of the coffee market in China with thousands of stores across the country. On August 18, Cowen analyst Andrew Charles maintained an Outperform rating on Starbucks Corporation (NASDAQ:SBUX) stock and raised the price target to $104 from $94, noting that a new investor meeting would be a catalyst for the stock in the near-term.
Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm Bridgewater Associates is a leading shareholder in Starbucks Corporation (NASDAQ:SBUX), with 3.2 million shares worth more than $247 million.
In its Q1 2022 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Starbucks Corporation (NASDAQ:SBUX) was one of them. Here is what the fund said:
“We trimmed our positions in most of these companies in 1Q 2022 and sold our stake in Starbucks after a 12+ year holding period. In our view, Starbucks Corporation (NASDAQ:SBUX) continues to be in a unique position to serve its customers who value the quality of its products and the convenient way they can be purchased. At the same time, Starbucks’ business is maturing in western markets, and its employee and store-related costs are growing, which should lead to slower earnings growth than we would prefer and further P/E multiple compression. We believe we have better opportunities as we continue to assess the impact of these issues for Starbucks Corporation (NASDAQ:SBUX).”
4. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 72
NIKE, Inc. (NYSE:NKE) makes and sells athletic products. The company has strong exposure to the Chinese market and a slowdown in the Chinese economy will impact the 2025 targets of the firm. Increased competition from local brands, as well as a sharp drawdown in consumer spending across the world will further weigh on the shares of the firm. Inventory issues are also causing the firm to discount prices in the US, a move expected to pressure revenues of the firm in the near-term.
On August 9, Exane BNP Paribas analyst Laurent Vasilescu downgraded NIKE, Inc. (NYSE:NKE) stock to Neutral from Outperform and lowered the price target to $118 from $151, noting that increased uncertainty in China would weigh on the stock in the near-term.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Fundsmith LLP is a leading shareholder in NIKE, Inc. (NYSE:NKE) with 6.7 million shares worth more than $687 million.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and NIKE, Inc. (NYSE:NKE) was one of them. Here is what the fund said:
“NIKE, Inc. (NYSE:NKE) is another play on e-commerce as well as the anticipated growth in consumer spending as we learn to live with COVID-19. After selling out of the stock in 2016 due to competitive concerns, we were motivated to repurchase shares because of optimism around a new management team’s focus on accelerating Nike’s shift toward e-commerce and direct-to-consumer (DTC) distribution. Near-term supply chain issues in Vietnam and retail weakness in China that we see as ephemeral provided a good buying opportunity. We do not believe the market is giving proper credit to Nike’s potential to deliver attractive, high-single-digit revenue growth while delivering operating margin expansion as more merchandise is sold direct. NIKE, Inc. (NYSE:NKE) is also still under-indexed to the women’s category, which we see as a significant ongoing catalyst.”
3. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 72
Tesla, Inc. (NASDAQ:TSLA) markets electric vehicles and clean energy solutions. On August 19, the company announced that it would be opening 48 new Supercharger stations, including 198 Superchargers, in mainland China during the month of July. China is one of the largest EV markets in the world and the firm sold over 28,000 EVs in China in July, a sharp drop from June amid upgrades to the factory in Shanghai. A slowdown in the Chinese economy will impact the sales of EVs in China, hitting Tesla stock.
On August 26, Jefferies analyst Philippe Houchois maintained a Buy rating on Tesla, Inc. (NASDAQ:TSLA) stock with a price target of $350, accounting for the 3:1 stock split in the target from the previous $1,050.
At the end of the second quarter of 2022, 72 hedge funds in the database of Insider Monkey held stakes worth $7.1 billion in Tesla, Inc. (NASDAQ:TSLA), compared to 80 in the previous quarter worth $11.2 billion.
Here is what Grantham Mayo Van Otterloo & Co. LLC has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2022 investor letter:
“To put the demand growth for clean energy materials into perspective, let’s look at Tesla, Inc. (NASDAQ:TSLA). At its Battery Day last year, Tesla, Inc. (NASDAQ:TSLA) projected three terawatt hours of lithium-ion battery capacity needed in 2030 for the EVs and storage they expect to produce. To reach this target, Tesla alone would gobble up approximately 75% of the world’s current nickel production and four times the world’s current lithium production. These numbers are astounding enough, but when one considers that EVs currently represent just 15% of global nickel demand and about 45% of lithium demand and that Tesla will likely be producing only a small proportion of the world’s EVs in 2030, the implications are staggering. Clean energy materials companies will make a lot more money in the decades to come than they ever have both because they will be selling a lot more metric tons of material and because there are certain to be shortages where supply can’t keep up with the rapidly growing demand.”
2. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 106
Alibaba Group Holding Limited (NYSE:BABA) is a diversified technology company. As a slowing Chinese economy weighs on the shares of the firm, regulatory pressures from both the Chinese and the US governments, the former with regards to algorithm transparency and the latter on audits, have added to the pressures on the share price. These pressures are expected to continue to impact the firm despite the Chinese government injecting $146 billion into the economy and reaching an audit agreement with the US.
On August 8, Deutsche Bank analyst Leo Chiang maintained a Buy rating on Alibaba Group Holding Limited (NYSE:BABA) stock and raised the price target to $160 from $155, appreciating the second quarter earnings beat of the firm.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Alibaba Group Holding Limited (NYSE:BABA), with 14.4 million shares worth more than $1.6 billion.
In its Q1 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Alibaba Group Holding Limited (NYSE:BABA) was one of them. Here is what the fund said:
“We have eliminated 6 holdings during the first quarter (including) Alibaba Group Holding Limited (NYSE:BABA). We have sold our Alibaba Group Holding Limited (NYSE:BABA) position as the company continues to face competitive challenges and regulatory pressures remain, making it difficult (if not impossible) to appropriately assess the range of outcomes and associated probabilities for the future profitability of the business.”
1. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 128
Apple Inc. (NASDAQ:AAPL) is a diversified technology company. Chinese consumers have shifted to premium phones in recent months, amid a decline in popularity of Huawei, a local smartphone brand, that is being replaced by Apple in China. A slowdown in the Chinese economy will impact this sales momentum for Apple just as it is preparing to release a new iPhone to the market. The firm plans to build 52 million iPhones in the third quarter, up over 8% year-on-year.
On August 19, KeyBanc analyst Brandon Nispel maintained a Buy rating on Apple Inc. (NASDAQ:AAPL) stock and raised the price target to $185 from $177, noting that the firm was off to a strong start in the fourth fiscal quarter.
At the end of the second quarter of 2022, 128 hedge funds in the database of Insider Monkey held stakes worth $143 billion in Apple Inc. (NASDAQ:AAPL), compared to 131 in the preceding quarter worth $182 billion.
In its Q2 2022 investor letter, Wedgewood Partners, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund said:
“Apple Inc. (NASDAQ:AAPL) grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple Inc. (NASDAQ:AAPL) is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit.[1] As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.”
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Disclosure. None. 10 Stocks At Risk From Slowing Chinese Economy is originally published on Insider Monkey.
