The Chinese equity market soared to record highs last year in June, but then quickly changed its trajectory and gave up most of its gains within a short span of time. It has continued its downward journey this year too with the Shanghai Composite Index currently trading down over 16.43% year-to-date. Considering the slowdown in the Chinese economy, most analysts feel that this correction was necessary to bring Chinese stocks back to reasonable levels. However, a lot of them also are of the opinion that this sell-off has caused unnecessary damage to Chinese stocks with sound fundamentals. Since several Chinese stocks are now trading at a fraction of what they used to trade earlier, we thought it might be the right time to come up with a list of Chinese stocks which investors should consider buying at current levels. To compile the list, we scanned the portfolios of some 800 hedge funds we track and identified the Chinese stocks which ranked as the most popular among these funds at the end of last year.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Qunar Cayman Islands Ltd (NASDAQ:QUNR)
– Investors with Long Positions (as of December 31): 25
– Aggregate Value of Investors’ Holdings (as of December 31): $2.11 billion
Shares of Qunar Cayman Islands Ltd (NASDAQ:QUNR) saw spectacular 75% rise during the last quarter of 2015. During the same period, the ownership of the company among funds covered by us inched up by one and the aggregate value of their holdings more than doubled. Though Qunar Cayman Islands Ltd (NASDAQ:QUNR)’s stock is currently trading down by over 30% year-to-date, it is still 20% in green from the start of the fourth quarter of 2015. At the beginning of 2016, the company announced a major reshuffle in its top management, in which Zhenyu Chen, the former head of the company’s Mobile Business Group, was promoted as the CEO and Qiang Zhang, the former head of its Destination Services Business Group, was promoted as the COO. Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP), once the biggest rival of Qunar Cayman Islands and another Chinese stock that has made it to this list, acquired a 45% stake in Qunar from Baidu Inc (ADR) (NASDAQ:BIDU) at the end of last year in exchange for a 25% stake in Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP).