In this article, we discuss the 10 Chinese stocks to avoid amid economic slowdown.
Investors around the world have been impacted from the prolonged COVID-19 policies of the Chinese government that have slowed down growth in the Asian country and stoked recession fears. The Asian Development Bank (ADB) has been forced to cut down growth forecasts for the developing countries in the region that are heavily linked to the Chinese economy. According to a recently released report of the body, the developing economies in Asia are still set to grow faster than China for the first time in three decades.
Some of the United States-based stocks that could be affected by the slowdown in China include Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS). Per the ADB, developing Asia — excluding China — is set to grow by 5.3% in 2022, compared to growth forecasts of 3.3% in the same year for China. The Asian bank has said that the last time this happened was in 1990 when developing economies in the region grew by close to 7% against nearly 4% growth figures for Beijing.
The ADB has identified three key reasons why the economy in China is slowing down. These include sporadic lockdowns from the zero-COVID policy, problems in the property sector, and slowing economic activity in light of weaker external demand. Per the bank, investments in the manufacturing sector of the country are also slowing. The bank claims that the Chinese economy will also be impacted by the rising inflation as banks in the region raise interest rates to tackle the menace that is spreading globally as well.
Our Methodology
The companies that have deep links with the Chinese economy were selected for the list. The analyst ratings 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
Chinese Stocks to Avoid Amid Economic Slowdown
10. ZTO Express (Cayman) Inc. (NYSE:ZTO)
Number of Hedge Fund Holders: 17
ZTO Express (Cayman) Inc. (NYSE:ZTO) provides express delivery and other value-added logistics services in China. On August 17, the company posted earnings for the second quarter of 2022, reporting earnings per share of $0.33, beating market estimates by $0.06. The revenue over the period was $1.29 billion, up over 14% compared to the revenue over the same period last year and beating analyst estimates by $30 million. The firm has also recently priced a $870 million debt offering. The firm features on the list of Chinese stocks to avoid amid economic slowdown since it is vulnerable to the impact of decreasing factory orders in China.
On August 25, Morgan Stanley analyst Qianlei Fan maintained an Overweight rating on ZTO Express (Cayman) Inc. (NYSE:ZTO) stock with a price target of $38.80, predicting that the share price of the firm will rise in absolute terms over the next 60 days.
Among the hedge funds being tracked by Insider Monkey, Australia-based investment firm Platinum Asset Management is a leading shareholder in ZTO Express (Cayman) Inc. (NYSE:ZTO), with 15 million shares worth more than $420 million.
Just like Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS), ZTO Express (Cayman) Inc. (NYSE:ZTO) is one of the China-related stocks to avoid amid economic slowdown.
9. New Oriental Education and Technology Group Inc. (NYSE:EDU)
Number of Hedge Fund Holders: 22
New Oriental Education and Technology Group Inc. (NYSE:EDU) provides private educational services. On July 27, the company posted earnings for the fourth fiscal quarter, reporting losses per share of $0.94. The revenue over the period was $524 million, down over 56% compared to the revenue over the same period last year. The firm has also said that net revenues for 2023 would be in the range of $641.3 million to $680.6 million, representing year-over-year decline in the range of 51% to 48%. The company is present on the list of Chinese stocks to avoid amid economic slowdown since Chinese spending patterns are changing.
On July 29, Bank of America analyst Lucy Yu upgraded New Oriental Education & Technology Group Inc. (NYSE:EDU) stock to Buy from Neutral and raised the price target to $36.60 from $18.80, noting the share price of the firm was on par with the new cash.
At the end of the second quarter of 2022, 22 hedge funds in the database of Insider Monkey held stakes worth $721 million in New Oriental Education and Technology Group Inc. (NYSE:EDU), down from 23 in the preceding quarter worth $260 million.
In its Q3 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and New Oriental Education and Technology Group Inc. (NYSE:EDU) was one of them. Here is what the fund said:
“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 and Technology Group Inc. (NYSE:EDU)—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.”
8. XPeng Inc. (NYSE:XPEV)
Number of Hedge Fund Holders: 24
XPeng Inc. (NYSE:XPEV) designs, develops, manufactures, and markets smart electric vehicles in China. On September 19, the company announced that it had begun rolling out the City Navigation Guided Pilot program. As the rollout begins, the firm has become the first Chinese auto company to introduce high-level Advanced Driver Assistance System (ADAS) functions for complex urban driving scenarios. The program features a multi-modality sensor fusion framework with cameras, LiDAR units, and millimeter-wave radars. The company is on the list of Chinese stocks to avoid amid an economic slowdown as EV sales are slowing down in the country.
On August 24, investment advisory Citi maintained a Buy rating on XPeng Inc. (NYSE:XPEV) stock and lowered the price target to $27.87 from $51.59. Analyst Jeff Chung issued the ratings update.
At the end of the second quarter of 2022, 24 hedge funds in the database of Insider Monkey held stakes worth $618.7 million in XPeng Inc. (NYSE:XPEV), compared to 26 in the preceding quarter worth $783.9 million.
7. Yum China Holdings, Inc. (NYSE:YUMC)
Number of Hedge Fund Holders: 25
Yum China Holdings, Inc. (NYSE:YUMC) owns, operates, and franchises restaurants in China. On July 28, the company posted earnings for the second quarter of 2022, reporting earnings per share of $0.20. The revenue over the period was $2.1 billion, down over 13% compared to the revenue over the same period last year and missing analyst estimates by $30 million. The firm also said that same-store sales decreased 16% year-over-year, with decreases of 16% at KFC and 15% at Pizza Hut. The company is on the list of Chinese stocks to avoid amid economic slowdown as restaurant sales fall during downturns.
On July 26, investment advisory CMB International upgraded Yum China Holdings, Inc. (NYSE:YUMC) stock to Buy from Hold with a HK$426.17 price target, up from HK$287.57. Analyst Walter Woo issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, London-based firm GuardCap Asset Management is a leading shareholder in Yum China Holdings, Inc. (NYSE:YUMC), with 9 million shares worth more than $438 million.
In its Q2 2022 investor letter, Cooper Investors, an asset management firm, highlighted a few stocks and Yum China Holdings, Inc. (NYSE:YUMC) was one of them. Here is what the fund said:
“Yum China Holdings, Inc. (NYSE:YUMC) – With the world emerging after two years of COVID, the extreme Shanghai lockdowns caught the company and frankly us a little by surprise. While the proposition for domestic KFC roll-out remains intact Yum China has not behaved like a Stalwart this year.”
6. NIO Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 25
NIO Inc. (NYSE:NIO) designs, develops, manufactures, and sells smart electric vehicles in China. On September 8, the company said that it was confident that export restrictions on chipmaker NVIDIA would not affect the production capabilities of the firm. NIO stock had dropped in the past week on the back of reports that the US had introduced new legislation that would require the chipmakers in the country to get a license for future exports to China for certain products. The company is on the list of Chinese stocks to avoid amid economic slowdown as EV sales slow down due to rising inflation.
On September 12, Deutsche Bank analyst Edison Yu maintained a Buy rating on NIO Inc. (NYSE:NIO) stock with a price target of $39, noting the firm was on a path to emerge as a leader among electric vehicle upstarts.
At the end of the second quarter of 2022, 25 hedge funds in the database of Insider Monkey held stakes worth $873.9 billion in NIO Inc. (NYSE:NIO), compared to 26 in the previous quarter worth $716 million.
Alongside Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS), NIO Inc. (NYSE:NIO) is one of the China-related stocks that hedge funds are avoiding amid economic slowdown.
In its Q1 2022 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and NIO Inc. (NYSE:NIO) was one of them. Here is what the fund said:
“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 Inc. (NYSE:NIO), have just started trading on this stock market.”
5. NetEase, Inc. (NASDAQ:NTES)
Number of Hedge Fund Holders: 26
NetEase, Inc. (NASDAQ:NTES) provides online services focusing on diverse content, community, communication, and commerce in China. The stock has climbed recently on the back of reports that authorities in China had approved a mobile game developed by the company. This is the first approval for a mobile game by the government in Beijing since late July 2021. Since that time, Beijing has been tightening control over gaming and tech stocks in the country. The company is on the list of Chinese stocks to avoid amid economic slowdown as value stocks become more attractive investments.
On September 7, JPMorgan analyst Daniel Chen downgraded NetEase, Inc. (NASDAQ:NTES) stock to Neutral from Overweight and lowered the price target to $90 from $120, backing the firm to deliver long-term growth to investors.
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 3.67 million shares worth more than $342 million.
4. KE Holdings Inc. (NYSE:BEKE)
Number of Hedge Fund Holders: 37
KE Holdings Inc. (NYSE:BEKE) engages in operating an integrated online and offline platform for housing transactions and services in China. On August 23, the company posted earnings for the second quarter of 2022, reporting losses per share of $0.08, beating market estimates by $0.13. The revenue over the period was $2.1 billion, down over 43% compared to the revenue over the same period last year and missing analyst estimates by $510 million. The firm also said that it expected total net revenues to be around $2.5 billion, representing a decrease of approximately 6.1% to 8.8% from 2021. The company is on the list of Chinese stocks to avoid amid economic slowdown.
On August 25, Barclays analyst Jiong Shao maintained an Overweight rating on KE Holdings Inc. (NYSE:BEKE) stock and raised the price target to $26 from $24, appreciating the earnings report of the firm for the second quarter of 2022.
At the end of the second quarter of 2022, 37 hedge funds in the database of Insider Monkey held stakes worth $1.6 billion in KE Holdings Inc. (NYSE:BEKE), compared to 34 in the preceding quarter worth $882.8 million.
In its Q3 2021 investor letter, Tao Value, an asset management firm, highlighted a few stocks and KE Holdings Inc. (NYSE:BEKE) was one of them. Here is what the fund said:
“As witnessed in the past quarter, the government intervention in 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 Inc. (NYSE: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).”
3. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 45
Baidu, Inc. (NASDAQ:BIDU) offers internet search services in China. On August 30, the company posted earnings for the second quarter of 2022, reporting earnings per share of $2.36, beating market estimates by $0.79. The revenue over the period was $4.4 billion, down more than 5% compared to the revenue over the same period last year and missing analyst estimates by $230 million. The firm also said that the adjusted EBITDA over the time was $1.05 billion and the adjusted EBITDA margin was 24%. The company is on the list of Chinese stocks to avoid amid economic slowdown as growth stocks take a battering amid inflation.
On September 16, UBS analyst Wei Xiong initiated coverage of Baidu, Inc. (NASDAQ:BIDU) stock with a Buy rating and a price target of HK$191.30, noting that the risk/reward profile of the shares appeared attractive for investors.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Ariel Investment is a leading shareholder in Baidu, Inc. (NASDAQ:BIDU), with 2.6 million shares worth more than $393 million.
In its Q2 2022 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Baidu, Inc. (NASDAQ:BIDU) was one of them. Here is what the fund said:
“Baidu, Inc. (NASDAQ:BIDU), a leading Chinese artificial intelligence company, contributed to performance in the second quarter due to an improving outlook for its mobile ecosystem, continued market share gains in cloud computing, solid progress in autonomous vehicle development, and improving operational efficiency. We see significant upside for Baidu, given its strong competitive position across several of China’s key growth industries.”
2. JD.com, Inc. (NASDAQ:JD)
Number of Hedge Fund Holders: 62
JD.com, Inc. (NASDAQ:JD) provides supply chain-based technologies and services in China. In late August, news agency Reuters reported that the company was among the first batch of Chinese tech giants that the US would target in a bid to gain access to the accounting records of the firm. The move comes after the US government introduced new laws that require Chinese firms trading in the US to comply with certain transparency standards that they had not been following previously. The company is on the list of Chinese stocks to avoid amid economic slowdown as investors turn towards value stocks.
On September 12, Susquehanna analyst Shyam Patil maintained a Neutral rating on JD.com, Inc. (NASDAQ:JD) stock and increased the price target to $62 from $55, noting that the second quarter earnings of the firm were solid despite macro headwinds.
At the end of the second quarter of 2022, 62 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in JD.com, Inc. (NASDAQ:JD), compared to 59 in the previous quarter worth $5.4 billion.
In its Q3 2021 investor letter, Argosy Investors, an asset management firm, highlighted a few stocks and JD.com, Inc. (NASDAQ:JD) was one of them. Here is what the fund said:
“We sold JD.com, Inc. (NASDAQ: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.”
1. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 106
Alibaba Group Holding Limited (NYSE:BABA), through its subsidiaries, provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses. Amid fears of an economic slowdown in China, the company is facing regulatory pressures from the US governments as well. 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. The company is on the list of Chinese stocks to avoid amid economic slowdown.
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, Camas, Washington-based investment firm Fisher Asset Management is a leading shareholder in Alibaba Group Holding Limited (NYSE:BABA), with 14 million shares worth more than $1.6 billion.
In its Q2 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:
“Alibaba Group Holding Limited(NYSE:BABA) is the largest retailer and e-commerce company in China. Alibaba operates shopping platforms Taobao and Tmall and owns 33% of Ant Group, which operates Alipay, China’s largest third party online payment provider. Shares of Alibaba rose during the quarter, driven by an increasing focus on improving capital allocation, an improving regulatory environment, and government stimulus targeting Chinese consumers. We retain conviction that Alibaba will benefit from rapid growth in cloud services, logistics, and retail.”
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Disclosure. None. 10 Chinese Stocks to Avoid Amid Economic Slowdown is originally published on Insider Monkey.
