11 Most Promising Chinese Stocks According to Analysts

Published on February 10, 2024 at 5:34 pm by Hamna Asim in Hedge Funds, News

In this article, we discuss 11 most promising Chinese stocks according to analysts. If you want to skip our discussion on the Chinese stock market, head directly to 5 Most Promising Chinese Stocks According to Analysts.

China’s economy has shown remarkable growth in the last 30 years, lifting it from a low-income to an upper-middle-income status. In December 2023, the International Monetary Fund reported that China’s economic expansion has been significant globally, accounting for 35% of the world’s GDP growth in recent years, surpassing the US at 27%. Despite this success, critics have highlighted weaknesses. China’s growth heavily relies on investments in real estate, funded by an inefficient banking system. High domestic debt, a declining workforce, and a turbulent property market have led some experts to anticipate an economic downturn. However, the Chinese government has adeptly navigated economic crises, averting potential banking crises, currency devaluations, housing market crashes, and economic collapses. Yet, the foundation of China’s growth appears vulnerable historically and analytically. Challenges like unfavorable demographics, high debt, and an inefficient financial system could constrain growth. Nevertheless, if managed effectively, China could pursue a more sustainable growth path, ensuring economic, social, and environmental stability despite potential limitations.

The challenges faced by the Chinese economy have led to a decline in its stock market, as highlighted by Reuters. Concerns loom over the potential for a deflationary trend in 2024, pushing predictions of further market declines. However, if President Xi Jinping takes assertive measures to revive the $18 trillion economy, a rebound could follow, making China one of the most high-risk, high-reward trades of 2024. The MSCI China Index, tracking stocks in mainland bourses and Chinese companies listed in Hong Kong and New York, saw a 15% drop in 2023. Factors contributing to investor pessimism include China’s cautious approach in stimulating the economy post-COVID-19, refraining from large-scale infrastructure spending or direct cash handouts. Instead, Xi continues efforts to tackle excessive leverage in the property sector, a significant driver of China’s GDP. There are concerns that China might fall into a debt-deflation loop similar to Japan’s economic downturn in the 1990s. If consumers and companies continue holding back spending due to the expectation of falling prices, it could shrink earnings, making debt repayment challenging and further impacting corporate earnings and valuations.

International investors are cautious due to rising US interest rates, geopolitical risks impacting technological advancements, and potential economic consequences if China intervenes in Taiwan. However, the dependence on foreign capital in China’s equities market is relatively low, with domestic retail traders dominating exchanges and holding significant capital. The performance of Chinese stocks may not necessarily align with economic growth, as historical data suggests. Despite strong economic growth in China, equity returns have lagged behind. This suggests that a slowing economy does not always result in a sluggish stock market. Looking ahead to 2024, projections for Chinese equities vary greatly. Some foresee significant rises or falls in the MSCI China Index, indicating substantial market uncertainty.

Pzena Emerging Markets Value Fund (NASDAQ:PZIEX), situated in New York and known for performing well compared to similar funds, increased its investment in China and Hong Kong stocks to roughly 33% of its portfolio during the third quarter. This adjustment marks an increase of about four to five percentage points, as per Bloomberg. In comparison, MSCI Inc. (NYSE:MSCI)’s gauge of Emerging Markets sits at 29%. This move by the fund reflects a trend among certain investment managers who are strategically buying Chinese stocks. They are taking advantage of evolving policies aimed at boosting liquidity and reinstating consumer confidence in a struggling economy. Allison Fisch, a money manager at the fund, stated in an email:

“The indiscriminate selling of Chinese stocks has increased the value opportunity. We’ve been taking advantage by buying up companies we believe are exceptionally cheap relative to their normalized earnings power.”

Despite uncertain economic and stock market conditions, analysts have expressed optimism about some of the Chinese Stocks. In this article, we discuss the most promising Chinese stocks according to analysts, which include Alibaba Group Holding Limited (NYSE:BABA), JD.com, Inc. (NASDAQ:JD), and KE Holdings Inc. (NYSE:BEKE).

Our Methodology

For this article, we first used a stock screener to identify all Chinese stocks which have Buy or better ratings from Wall Street analysts as well as price targets that show a 50% potential upside from their current levels as of February 5. From a comprehensive list of stocks we got as a result, we narrowed down to 11 of these Chinese stocks which have the highest number of hedge fund investors as of the third quarter of 2023. The list is ranked according to the potential upside, from smallest to highest.

An employee of the public company in their office in Shanghai, China.

Most Promising Chinese Stocks According to Analysts

11. Qifu Technology, Inc. (NASDAQ:QFIN)

Number of Hedge Fund Holders: 12

Average Analyst Price Target: $22.28

Average Upside Potential: 60.63%

Qifu Technology, Inc. (NASDAQ:QFIN)operates a credit-tech platform known as 360 Jietiao in China. The platform provides credit-based services that connect borrowers with financial institutions. Additionally, the company offers platform services to financial institution partners. Qifu Technology, Inc. (NASDAQ:QFIN) also extends e-commerce loans, enterprise loans, and invoice loans to small and medium-sized enterprise owners.

On November 16, Qifu Technology, Inc. (NASDAQ:QFIN) announced a Q3 non-GAAP EPS of $0.99. The company reported a revenue of $586.76 million, outperforming estimates by $15.24 million.

According to Insider Monkey’s third quarter database, 12 hedge funds were bullish on Qifu Technology, Inc. (NASDAQ:QFIN), compared to 11 funds in the previous quarter.

Like Alibaba Group Holding Limited (NYSE:BABA), JD.com, Inc. (NASDAQ:JD), and KE Holdings Inc. (NYSE:BEKE), Qifu Technology, Inc. (NASDAQ:QFIN) is one of the most promising Chinese stocks.

10. Baidu, Inc. (NASDAQ:BIDU)

Number of Hedge Fund Holders: 44

Average Analyst Price Target: $165.28

Average Upside Potential: 60.79%

Third on our list of the most promising Chinese stocks is Baidu, Inc. (NASDAQ:BIDU), which provides multiple apps including Baidu App and Haokan, as well as online communities like Baidu Knows and Baidu Post. Baidu also offers online marketing services, cloud services, self-driving services, and smart devices through its DuerOS platform.

On January 26, Baidu, Inc. (NASDAQ:BIDU) and Samsung Electronics announced a strategic collaboration, disclosing that Baidu’s Ernie AI will be incorporated into Samsung’s latest Galaxy S24 series of smartphones in China. This partnership aims to integrate Ernie’s functionalities into Samsung’s newly introduced Galaxy AI, allowing it to perform tasks such as rapid content translation and summarization.

According to Insider Monkey’s third quarter database, Baidu, Inc. (NASDAQ:BIDU) was part of 44 hedge fund portfolios, compared to 36 in the prior quarter. Alkeon Capital Management is the leading position holder in the company, with 2.4 million shares worth $332 million.

Ariel Global Fund made the following comment about Baidu, Inc. (NASDAQ:BIDU) in its Q2 2023 investor letter:

“By comparison, after a strong run last quarter, China’s internet search and online community leader, Baidu, Inc. (NASDAQ:BIDU) declined alongside a correction in Chinese stocks attributed to weak gross domestic product. We believe this price action runs counter to the company’s solid business fundamentals. Baidu delivered a top- and bottom-line earnings beat in the period, driven by a recovery in ad and cloud revenues. The company continues to invest heavily in Artificial Intelligence (AI) and is launching a generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”

9. Alibaba Group Holding Limited (NYSE:BABA)

Number of Hedge Fund Holders: 110

Average Analyst Price Target: $118.20

Average Upside Potential: 64.51%

Alibaba Group Holding Limited (NYSE:BABA), along with its subsidiary companies, offers technological support and marketing platforms to assist merchants, brands, retailers, and businesses in connecting with their users and customers in China and worldwide. Alibaba Group Holding Limited (NYSE:BABA) is one of the most promising Chinese stocks according to analysts. The company operates through seven sections: China Commerce, International Commerce, Local Consumer Services, Cainiao, Cloud Services, Digital Media and Entertainment, and Innovation Initiatives and Others. On November 16, Alibaba Group Holding Limited (NYSE:BABA) declared a $1.00 per ADS annual dividend. It is to be paid on January 18 to shareholders of record as of December 21.

On December 21, Alibaba Group Holding Limited (NYSE:BABA)’s Taobao China finalized the sale of 25 million American depositary shares belonging to XPeng Inc. (NYSE:XPEV), a Chinese electric vehicle company. This sale represented 50 million class A ordinary shares and was priced at $14.18 per ADS. The total value of these securities amounted to approximately $391 million in the market.

According to Insider Monkey’s third quarter database, 110 hedge funds were bullish on Alibaba Group Holding Limited (NYSE:BABA), compared to the previous quarter when 112 funds had invested in the stock. Ken Fisher’s Fisher Asset Management is a significant position holder in the company, with 3.85 million shares valued at $334.26 million.

L1 Long Short Fund made the following comment about Alibaba Group Holding Limited (NYSE:BABA) in its second quarter 2023 investor letter:

“Alibaba Group Holding Limited (NYSE:BABA) (Long -18%) shares weakened in recent months as Chinese reopening strength faded and macro-economic data points began sequentially declining. Nevertheless, we believe the Chinese government will use consumption as a key lever to reinvigorate the economy post-COVID lockdowns. Alibaba remains a high-quality business with leading positions in both eCommerce and Public Cloud, and management is taking proactive steps to unlock shareholder value. It has announced plans to split into six major business groups – Cloud Intelligence, Taobao Tmall, Local Services, Global Digital, Cainiao Smart Logistics and Digital Media, and Entertainment Group. Each group will be managed independently, with a separate CEO and board, have the flexibility to raise external capital and potentially pursue separate IPOs. We believe this restructure will be a strong positive catalyst to unlock the sum-of-the-parts valuation upside in the company.”

8. KE Holdings Inc. (NYSE:BEKE)

Number of Hedge Fund Holders: 37

Average Analyst Price Target: $22.87

Average Upside Potential: 67.75%

Ranked high on our list of the most promising Chinese stocks, KE Holdings Inc. (NYSE:BEKE) operates a combined online and offline platform facilitating housing transactions and services in China. Their business comprises four sections – handling transactions for existing homes, facilitating transactions for new homes, providing home renovation and furnishing services, and offering emerging and other services. The company was established in 2001 and is based in Beijing, China. On November 8, KE Holdings Inc. (NYSE:BEKE) announced a Q3 non-GAAP EPS of $0.25 and a revenue of $2.45 billion, exceeding estimates by $0.13 and $76.12 million, respectively.

As per Insider Monkey’s third quarter database, 37 hedge funds were bullish on KE Holdings Inc. (NYSE:BEKE), up from 36 funds in the previous quarter. Lei Zhang’s Hillhouse Capital Management is the largest shareholder of the company, with a position comprising 30.67 million shares valued at $475.93 million.

Artisan Developing World Fund made the following comment about KE Holdings Inc. (NYSE:BEKE) in its second quarter 2023 investor letter:

“Bottom contributors to performance for the quarter included real estate platform KE Holdings Inc. (NYSE:BEKE). Beke fell due to weaker industry property sales in China in April following the release of strong pent-up demand in Q1, despite accelerating revenue and very modest cost growth.”

7. H World Group Limited (NASDAQ:HTHT)

Number of Hedge Fund Holders: 28

Average Analyst Price Target: $54.27

Average Upside Potential: 73.94%

Ranking 5th on our list of the most promising Chinese stocks, H World Group Limited (NASDAQ:HTHT) focuses on developing hotels through different ownership models like leased, owned, managed, and franchised arrangements, mainly in China. They manage hotels under their own brands such as HanTing Hotel, Ni Hao Hotel, Hi Inn, and more.

On January 22, H World Group Limited (NASDAQ:HTHT) reported that its Legacy-Huazhu business witnessed a robust recovery in Revenue Per Available Room (RevPAR) during Q4, reaching 120% of the 2019 level. This revival was attributed to the sustained rebound in both leisure and business travel demand. Breaking down the quarterly performance, RevPAR in October, November, and December 2023 stood at 120%, 117%, and 123% of the 2019 levels, respectively. For the entire year of 2023, the RevPAR reached an overall level of 122% compared to the figures from 2019.

According to Insider Monkey’s third quarter database, 28 hedge funds were bullish on H World Group Limited (NASDAQ:HTHT), compared to 31 funds in the preceding quarter.

6. JD.com, Inc. (NASDAQ:JD)

Number of Hedge Fund Holders: 53

Average Analyst Price Target: $39.81

Average Upside Potential: 82.78%

JD.com, Inc. (NASDAQ:JD) operates in the People’s Republic of China, providing technological solutions and services based on supply chain management. The company offers a range of products, including electronics, home appliances, groceries, baby products, furniture, cosmetics, healthcare items, and more. Previously named 360buy Jingdong Inc., the company rebranded to JD.com, Inc. (NASDAQ:JD) in January 2014. JD.com, Inc. (NASDAQ:JD) is known as one of the most promising Chinese stocks.

On November 15, JD.com, Inc. (NASDAQ:JD) announced a Q3 non-GAAP EPADS of $0.92 and a revenue of $34.18 billion, outperforming Wall Street estimates by $0.12 and $272.60 million, respectively.

According to Insider Monkey’s third quarter database, 53 hedge funds were bullish on JD.com, Inc. (NASDAQ:JD), compared to 64 funds in the preceding quarter. Chase Coleman and Feroz Dewan’s Tiger Global Management held a significant position in the company, with 9.86 million shares worth approximately $287.3 million.

In addition to Alibaba Group Holding Limited (NYSE:BABA), JD.com, Inc. (NASDAQ:JD), and KE Holdings Inc. (NYSE:BEKE), Li Auto Inc. (NASDAQ:LI) is one of the most promising Chinese stocks. It ranks 6th on our list of the most promising Chinese stocks.

Baron Emerging Markets Fund made the following comment about JD.com, Inc. (NASDAQ:JD) in its first quarter 2023 investor letter:

“JD.com, Inc. (NASDAQ:JD) is one of the three largest e-commerce platforms in China. Shares declined after the company reported a slowdown in fourth quarter sales and commented that deliberate culling of unprofitable SKUs would also be a drag on headline revenue growth in the first half of 2023. We believe the slowdown was driven by the peak in Chinese COVID lockdowns, which have since ended, and the elimination or reduction of unprofitable business is better for long-term margins and returns on capital. We remain investors.”

Click to continue reading and see 5 Most Promising Chinese Stocks According to Analysts.

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Published on May 1, 2024 at by Inan Dogan, PhD

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