In this article, we discuss 10 China stocks in Ray Dalio’s portfolio.
Ray Dalio, the billionaire chief of Bridgewater Associates, shared his thoughts on China in a series of tweets on August 31. He categorized China as a “strong power in rapid ascent” based on computerized data as of April 2022, which shows that China ranks second in the list of major countries in terms of education, innovation and tech, military strength, trade, and economic output, to name a few key indicators.
Dalio, a financial wizard who manages a $23.5 billion portfolio for his clients, attributed China’s success to its core strengths including superior infrastructure, high investment, its integral role in global trade, high level of education, focus on innovation/technology, self-sufficient individuals and strong work ethic, and a powerful military. China’s importance in global trade and supply chains also sets it apart, and Ray Dalio believes that the country’s significance as a financial center is also growing.
Securities filings for the second quarter of 2022 reveal that Ray Dalio’s Bridgewater Associates is bullish on the finance, consumer staples, consumer discretionary, technology, and healthcare sectors. In addition to The Procter & Gamble Company (NYSE:PG), Johnson & Johnson (NYSE:JNJ), and The Coca-Cola Company (NYSE:KO), Ray Dalio also owns a number of Chinese securities for exposure to the Asian superpower.
Our Methodology
We selected these Chinese stocks from the Q2 2022 portfolio of Ray Dalio’s Bridgewater Associates. We have ranked the list according to the hedge fund sentiment around the securities, which was assessed from Insider Monkey’s Q2 2022 database of about 900 elite hedge funds.
China Stocks in Ray Dalio’s Portfolio
10. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Number of Hedge Fund Holders: 22
New Oriental Education & Technology Group Inc. is a Beijing-based company that provides private educational services under the New Oriental brand in the People’s Republic of China. The company operates through K-12 AST, Test Preparation and Other Courses, Online Education, and Others segments. Ray Dalio added New Oriental Education & Technology Group Inc. to his portfolio in the second quarter of 2022, buying 1.36 million shares worth $27.70 million.
New Oriental Education & Technology Group Inc.’s Q2 results failed to meet Wall Street consensus, but on July 27, the board of directors authorized the repurchase of up to $400 million common shares 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. to Buy from Neutral, raising the price target to $36.60 from $18.80. Fiscal 2023 is likely to “market a year of a new start”, as per the analyst. The present share price is on par with New Oriental Education & Technology Group Inc.’s new cash and does not account for a rebound from the March quarter trough, the analyst told investors in a bullish thesis.
According to Insider Monkey’s data, 22 hedge funds were bullish on New Oriental Education & Technology Group Inc. at the end of June 2022, with combined stakes worth $721.3 million, compared to 23 funds in the prior quarter worth $260 million. Seth Klarman’s Baupost Group is the leading stakeholder of the company, with 8 million shares worth about $163 million.
In addition to The Procter & Gamble Company, Johnson & Johnson, and The Coca-Cola Company, New Oriental Education & Technology Group Inc. is one of the notable stocks in Ray Dalio’s portfolio.
Here is what Polen International Growth has to say about New Oriental Education & Technology Group Inc. 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.”
9. Zai Lab Limited (NASDAQ:ZLAB)
Number of Hedge Fund Holders: 22
Zai Lab Limited (NASDAQ:ZLAB) was incorporated in 2013 and is headquartered in Shanghai, China. The company develops and commercializes therapies for cancer, autoimmune disorders, infectious diseases, and neuroscience in Mainland China and Hong Kong. In the second quarter of 2022, Ray Dalio boosted his stake in Zai Lab Limited by 81%, holding 637,181 shares worth $22 million.
On August 9, Zai Lab Limited reported earnings for Q2 2022, posting a GAAP loss per share of $0.14, exceeding market consensus by $0.92. The revenue of $48.17 million climbed 30.4% year over year, outperforming analysts’ predictions by $1.04 million.
Citi analyst Yigal Nochomovitz on August 9 raised the price target on Zai Lab Limited to $199 from $193 and kept a Buy rating on the shares. The analyst increased the likelihood of success for KarXT in China from 65% to 90% after the news that Karuna Therapeutics, Inc. (NASDAQ:KRTX)’s Phase 3 EMERGENT-2 trial worked. The analyst estimates Zai Lab Limited could launch KarXT in the Chinese schizophrenia market in 2025 after the completion of bridging work in Chinese patients. The analyst sees KarXT eventually achieving $280 million in risk-adjusted peak China sales.
According to Insider Monkey’s data, 22 hedge funds were bullish on Zai Lab Limited at the end of the second quarter of 2022, compared to 27 funds in the prior quarter. Andreas Halvorsen’s Viking Global is the leading stakeholder of the company, with 3.3 million shares worth $114.4 million.
Here is what ClearBridge Investments International Growth ACWI ex-U.S. Strategy has to say about Zai Lab Limited in its Q4 2021 investor letter:
“Economies in Asia, meanwhile, are taking the opposite approach on stimulus, with China lowering its reserve requirement ratio for banks to support flagging growth in the world’s second-largest economy. Japan’s new government passed a large stimulus bill after its economy contracted in the third quarter. Despite these actions, sentiment remains decidedly negative in these regions. Our underweight to Japan proved beneficial during the quarter while our single holding in China – biotechnology company Zai Lab – sold off sharply mostly due to generally weak sentiment around Chinese health care stocks.”
8. Vipshop Holdings Limited (NYSE:VIPS)
Number of Hedge Fund Holders: 22
Vipshop Holdings Limited (NYSE:VIPS) was founded in 2008 and is headquartered in Guangzhou, China. The company operates online platforms for women’s apparel, skin care, cosmetic products, bed and bath items, and home decor, among others. Ray Dalio’s Bridgewater Associates held 2.17 million shares of Vipshop Holdings Limited in the second quarter of 2022, worth $21.5 million.
On August 19, Vipshop Holdings Limited reported a Q2 non-GAAP EPADS of $0.37, exceeding estimates by $0.12. The revenue of $3.7 billion also outperformed Wall Street consensus by $300 million. For the third quarter of 2022, the company expects its total net revenues to be between RMB 21.2 billion and RMB 22.4 billion, representing a year over year decrease of about 10% to 15%, versus an estimated decline of 14.03% year over year .
Credit Suisse analyst Ashley Xu upgraded Vipshop Holdings Limited to Outperform from Neutral with a price target of $12, up from $10.30, after the Q2 beat. The analyst expects Vipshop Holdings Limited’s earnings growth “to be expedited by revenue recovery and effective cost control”. The analyst believes the earnings beat and the continuing buyback program will drive upward earnings revisions and a re-rating of the stock.
According to Insider Monkey’s data, 22 hedge funds were bullish on Vipshop Holdings Limited at the end of Q2 2022, up from 20 funds in the prior quarter. Harris Associates is the leading position holder in the company, with roughly 36 million shares worth $354.5 million.
Here is what Oakmark Fund has to say about Vipshop Holdings Limited in its Q3 2021 investor letter:
“Vipshop Holdings ADR (China) offers a differentiated value proposition to its customers via its online product sales and distributions services. We like that the business model is asset-light due to inventory being predominantly on consignment and logistics outsourced to a third party. We believe the company should generate meaningful free cash flow moving forward.”
7. XPeng Inc. (NYSE:XPEV)
Number of Hedge Fund Holders: 24
XPeng Inc. (NYSE:XPEV) is a Guangzhou-based company that manufactures and markets smart electric vehicles in the People’s Republic of China. Ray Dalio’s hedge fund owned 2.16 million shares of XPeng Inc. worth $68.5 million in the second quarter of 2022. XPeng Inc. reported on September 1 that it had a 33% year over year growth in August 2022 vehicle deliveries. The Chinese EV maker delivered 9,578 Smart EVs in August. The revenue of $1.11 billion climbed 97.7% year over year, outperforming consensus by $10 million.
The Q3 outlook of XPeng Inc. suggests deliveries of vehicles to be between 29,000 and 31,000, reflecting a year-over-year increase of about 13.0% to 20.8%. The total revenues are expected to fall between RMB6.8 billion and RMB7.2 billion, representing a year-over-year increase of about 18.9% to 25.9%.
On August 24, Citi analyst Jeff Chung reaffirmed a Buy recommendation on XPeng Inc. but lowered the price target on the shares to $27.87 from $51.59 after the Q2 results. The company’s Q3 sales volume guidance is “very conservative”, the analyst told investors. Due to “multiple uncertainties” such as the pandemic, consumption downgrade, and supply chain challenges, the analyst slashed sales volume forecasts.
According to Insider Monkey’s data, 24 hedge funds were bullish on XPeng Inc. at the end of Q2 2022, compared to 26 funds in the prior quarter. Chase Coleman’s Tiger Global Management is the leading stakeholder of the company, with 4.35 million shares worth $138.2 million.
6. NIO Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 25
NIO Inc. (NYSE:NIO) was incorporated in 2014 and is headquartered in Shanghai, China. The company manufactures smart electric vehicles in China, offering electric SUVs and electric sedans. On September 1, the company delivered 10,677 vehicles in August 2022, representing an increase of 81.6% year over year and 6% month over month. The deliveries consisted of 7,551 premium smart electric SUVs and 3,126 premium smart electric sedans. Ray Dalio owns a $120 million stake in NIO Inc. as per securities filings for the second quarter of 2022.
Deutsche Bank analyst Edison Yu on August 23 said that NIO Inc. moving towards overseas expansion is an “under-appreciated aspect” of its long term growth prospects. The company plans to penetrate Germany, Netherlands, Denmark, and Sweden markets before year-end. The company is also exploring a potential location for its first U.S. store in downtown San Francisco. The analyst has a Buy rating on NIO Inc. shares with a $45 price target.
According to Insider Monkey’s data, 25 hedge funds were long NIO Inc. at the end of June 2022, compared to 26 funds in the last quarter. Jim Simons’ Renaissance Technologies is the biggest shareholder of the company, with 17.7 million shares worth about $386 million.
Like The Procter & Gamble Company, Johnson & Johnson, and The Coca-Cola Company, elite investors are piling into NIO Inc..
Here is what Horos Asset Management has to say about NIO Inc. in its Q1 2022 investor letter:
“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. Other entities, such as the electric vehicle manufacturer Nio, have just started trading on this stock market.”
5. Yum China Holdings, Inc. (NYSE:YUMC)
Number of Hedge Fund Holders: 25
Yum China Holdings, Inc. (NYSE:YUMC) is a Shanghai-based company that operates and franchises restaurants in China under the KFC, Pizza Hut, Little Sheep, Huang Ji Huang, Lavazza, COFFii & JOY, Taco Bell, and East Dawning brands. Bridgewater Associates owns more than 1.5 million shares of Yum China Holdings, Inc. worth $75 million as of Q2 2022, representing 0.31% of the total 13F holdings. Despite missing market estimates for EPS and revenue during Q2 2022, the company reaffirmed its FY 2022 outlook of opening approximately 1,000 to 1,200 new stores.
On July 26, CMB International analyst Walter Woo upgraded Yum China Holdings, Inc. to Buy from Hold with a HK$426.17 price target, up from HK$287.57. While the analyst expects future earnings cuts to occur, easing pandemic restrictions and efficient cost management make him optimistic on Yum China Holdings, Inc.’s outlook for the second half of 2022.
Among the hedge funds tracked by Insider Monkey, Yum China Holdings, Inc. was part of 25 hedge fund portfolios at the end of Q2 2022, compared to 27 funds in the earlier quarter. GuardCap Asset Management is the largest shareholder of the company, with more than 9 million shares worth $438 million.
4. Li Auto Inc. (NASDAQ:LI)
Number of Hedge Fund Holders: 28
Li Auto Inc. (NASDAQ:LI) was founded in 2015 and is headquartered in Beijing, China. The company develops and manufactures new energy vehicles in the People’s Republic of China. Ray Dalio’s Bridgewater Associates owned 3.26 million shares of Li Auto Inc. in the second quarter of 2022, worth more than $125 million, representing 0.53% of the total holdings. Li Auto Inc. is looking to build an industrial park for auto parts in the Jiangsu province of China.
On August 29, Morgan Stanley analyst Tim Hsiao maintained an Overweight rating and a $53 price target on Li Auto Inc. shares. The analyst said that Li Auto Inc.’s August delivery of L9 SUVs will be delayed due to power shortages in Sichuan and a “production hiccup” in its range extension system.
According to Insider Monkey’s data, 28 hedge funds were bullish on Li Auto Inc. at the end of June 2022, with collective stakes worth $1.40 billion. Chase Coleman’s Tiger Global Management is the biggest stakeholder of the company, with 12.8 million shares worth $490 million.
3. KE Holdings Inc. (NYSE:BEKE)
Number of Hedge Fund Holders: 37
KE Holdings Inc. (NYSE:BEKE) is a Beijing-based company that runs an integrated online and offline platform for real estate transactions and services in the People’s Republic of China. The company operates through three segments – Existing Home Transaction Services, New Home Transaction Services, and Emerging and Other Services. Ray Dalio’s portfolio had over 3 million shares of KE Holdings Inc. in Q2 2022, worth $55.4 million.
On August 25, Barclays analyst Jiong Shao raised the price target on KE Holdings Inc. to $26 from $24 and reaffirmed an Overweight rating on the shares. The company’s “much stronger than expected” Q2 results showed a 30% revenue beat and demonstrate that Chinese consumers are “coming out in droves to scoop up homes,” the analyst told investors.
According to Insider Monkey’s data, 37 hedge funds were bullish on KE Holdings Inc. at the end of June 2022, up from 34 funds in the last quarter. Thomas Steyer’s Farallon Capital is a notable position holder in the company, with approximately 10 million shares worth $178.75 million.
Here is what Tao Value has to say about KE Holdings Inc. in its Q3 2021 investor letter:
“As witnessed in the past quarter, the government intervention in the Chinese private sector is elevated to an unprecedented level. Given this background, I thoroughly reviewed all our Chinese holdings and made a few changes. We exited KE holdings (ticker: BEKE), for high potential regulatory risk and the passing of the visionary founder & CEO Zuo Hui (who was a core tenet of our original thesis).”
2. Pinduoduo Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 41
Pinduoduo Inc. (NASDAQ:PDD) operates an e-commerce platform in the People’s Republic of China. The company posted upbeat second quarter results, earning 93 cents a share on a revenue of $4.7 billion. Pinduoduo Inc.’s solid performance is an ode to the resilience of Chinese customers, and the company expects strong sales during China’s 618 shopping festival. Ray Dalio owns 4.8 million Pinduoduo Inc. shares as of Q2 2022 worth $297.5 million, representing 1.26% of his total 13F portfolio.
On August 21, Macquarie analyst Ellie Jiang raised the price target on Pinduoduo Inc. to $104 from $77 and maintained an Outperform rating on the shares after the company reported “strong” Q2 results. She lifted her 2022/23 non-GAAP net profit estimates by 52% and 36%, respectively, to reflect a more optimistic outlook for ads monetization.
According to Insider Monkey’s Q2 data, 41 hedge funds were bullish on Pinduoduo Inc., up from 36 funds in the last quarter. Rajiv Jain’s GQG Partners is the leading position holder in the company, with 6.15 million shares worth about $381 million.
Here is what Tao Value has to say about Pinduoduo Inc. 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. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 45
Baidu, Inc. (NASDAQ:BIDU) is a Beijing-based company that provides internet search services in China. The company posted a Q2 Non-GAAP EPADS of $2.36 and a revenue of $4.43 billion on August 30, outperforming Wall Street estimates by $0.79 and $230 million, respectively. The company had a free cash flow of $823 million. Ray Dalio boosted his Baidu, Inc. stake by 2% in Q2 2022, holding 1.14 million shares worth over $170 million.
On August 31, JPMorgan analyst Alex Yao upgraded Baidu, Inc. to Overweight from Neutral with a price target of $200, up from $160, after lifting his FY22 and FY23 EPS estimates by 20% and 22%, respectively, as he expects a margin recovery. He forecasts Baidu, Inc.’s EPS growth to continue being “notable” after Q4 and projects upward revisions of other earnings estimates to support a higher stock price.
Among the hedge funds tracked by Insider Monkey, 45 funds were bullish on Baidu, Inc. at the end of June 2022, compared to 47 funds in the last quarter. John W. Rogers’ Ariel Investments is the largest stakeholder of the company, with 2.64 million shares worth about $393 million.
Here is what Horos Asset Management has to say about Baidu, Inc. in its Q1 2022 investor letter:
“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).”
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This article is originally published at Insider Monkey.
