In this article, we discuss the 5 Chinese stocks hedge funds are selling amid crackdowns. If you want to read our detailed analysis of these stocks, go directly to the Hedge Funds are Selling These 10 Chinese Stocks Amid Crackdowns.
5. GDS Holdings Limited (NASDAQ:GDS)
Number of Hedge Fund Holders in Q2: 38
Number of Hedge Fund Holders in Q1: 40
GDS Holdings Limited (NASDAQ:GDS) is ranked fifth on our list of 10 Chinese stocks hedge funds are selling amid crackdowns. The firm develops and operates data centers and is headquartered in Shanghai.
On August 19, investment advisory RBC Capital reiterated an Outperform rating on GDS Holdings Limited (NASDAQ:GDS) stock but lowered the price target to $100 from $122, underlining that the “country risk and macro uncertainty” factored in the ratings update.
At the end of the second quarter of 2021, 38 hedge funds in the database of Insider Monkey held stakes worth $1.6 billion in GDS Holdings Limited (NASDAQ:GDS), down from 40 in the previous quarter worth $2 billion.
In its Q1 2020 investor letter, Baron Asset Fund, an asset management firm, highlighted a few stocks and GDS Holdings Limited (NASDAQ:GDS) was one of them. Here is what the fund said:
“In the most recent quarter, we acquired shares of GDS Holdings Limited, the leading data center developer and operator in China serving the premier Chinese cloud service, e-commerce, social media/gaming, and internet players. Although we have not invested in many foreign-based companies, we believe that GDS represents a compelling opportunity. Its business shares many similarities with Equinix, Inc., a U.S.- based data center operator that has been a profitable long-term investment for the Fund. In addition, our real estate research team has met extensively with GDS management over the course of the last few years and has built increased confidence in the team’s growth aspirations and its ability to successfully execute them.
We believe that the Chinese data center industry remains in the earlier stages of its growth curve, and we believe it will experience one of the fastest multi-year growth rates globally as the Chinese government continues to support the rapid rollout of 5G connectivity. GDS’s current and future data centers support the critical IT infrastructure that empowers cloud adoption and enables numerous consumer and business applications. In addition to experiencing robust organic growth, GDS has accelerated its growth runway through select M&A. These acquisitions have allowed the company to obtain additional capacity in supply constrained markets at attractive prices. In addition, GDS has supplemented its dense urban strategy with a “campus strategy,” whereby it secures additional supplies of land and power on the outskirts of cities with minimal capital committed.
To provide some perspective on GDS’s growth rate, it signs more “bookings” in a single quarter than many global data center companies sign over the course of a year. Lastly, after two well received capital raises in 2019, GDS remains well funded with ample cash on its balance sheet to support multiple years of accelerated growth. GDS also has several deep-pocketed backers, including the Singaporean government’s investment fund, that have remained supportive of GDS’s growth plans and have participated in several of GDS’s capital raises. We believe there are many similarities to our other data center investments–GDS is earlier on its growth curve but growing at a much faster clip. We see a path for GDS to nearly triple its cash flow over the next few years, and we see a path to double our investment over that timeframe.”
4. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Number of Hedge Fund Holders in Q2: 39
Number of Hedge Fund Holders in Q1: 45
New Oriental Education & Technology Group Inc. (NYSE:EDU) is a Beijing-based company that markets private educational services across China. It is placed fourth on our list of 10 Chinese stocks hedge funds are selling amid crackdowns.
On July 25, investment advisory Goldman Sachs downgraded New Oriental Education & Technology Group Inc. (NYSE:EDU) stock to Neutral from Buy and lowered the price target to $3.60 from $14.20, noting that the after-school tutoring market was shrinking in China.
At the end of the second quarter of 2021, 39 hedge funds in the database of Insider Monkey held stakes worth $590 million in New Oriental Education & Technology Group Inc. (NYSE:EDU), down from 45 in the preceding quarter worth $2 billion.
In its Q1 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and New Oriental Education & Technology Group Inc. (NYSE:EDU) was one of them. Here is what the fund said:
“New Oriental Education shares declined in the quarter, seemingly on account of two notable drivers. First, Chinese online education is currently under a regulatory microscope, although the online tutoring area is not central to New Oriental’s business. We continue to believe that, as a large player in a highly fragmented market, New Oriental is well-positioned to manage regulatory change and offers regulators an easier touchpoint to regulate and monitor than individual mom & pop operators.
As regulatory fears hit the after-school tutoring market, we think New Oriental, a leading player in brick-and-mortar after-school tutoring, could gain strength. We think the long-term backdrop for after-school tutoring remains quite favorable. Significant scale advantages and a highly cash generative model with just approximately 5% market share indicate that New Oriental has potential to grow at a high rate, in our opinion. Further, movements by another investor in New Oriental in late March 2021 prompted indiscriminate selling of shares. Those sales left shares trading at a compelling valuation, in our opinion, so we acted by adding to our position. We think New Oriental remains poised to grow earnings at approximately 25% annual rate in the coming years.”
3. Bilibili Inc. (NASDAQ:BILI)
Number of Hedge Fund Holders in Q2: 47
Number of Hedge Fund Holders in Q1: 53
Bilibili Inc. (NASDAQ:BILI) is a Shanghai-based company that provides online entertainment services, including live broadcasting. It is ranked third on our list of 10 Chinese stocks hedge funds are selling amid crackdowns.
On August 20, investment advisory HSBC maintained a Buy rating on Bilibili Inc. (NASDAQ:BILI) stock but lowered the price target to $127 from $140, underlining that the potential outperformance in non-game would offset weaker game contribution for the firm.
At the end of the second quarter of 2021, 47 hedge funds in the database of Insider Monkey held stakes worth $2 billion in Bilibili Inc. (NASDAQ:BILI), down from 53 in the preceding quarter worth $3 billion.
In its Q4 2020 investor letter, Tao Value, an asset management firm, highlighted a few stocks and Bilibili Inc. (NASDAQ:BILI) was one of them. Here is what the fund said:
“Bilibili (ticker:BILI) similarly reported a blast Q3 2020. Bilibili reached average MAU of 197m with high 7.6% pay ratio, showing strong user growth and high engagement. Additionally, the high margin advertisement segment showed exceptionally strong trend, growing 126% yoy. Though surprising to many, I think it is a natural outcome of building an ever-more valuable user generated contents platform. If it is not by ads, I believe these values created by Bilibili will accrue to it in other ways. One interesting data point is that management mentioned the average age of new cohorts are still around 20, indicating it is still in its early stage of a long growth runway. I am happy to see this position played out like how I envisioned in original thesis and will be excited to continue to follow its progress.”
2. Pinduoduo Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders in Q2: 49
Number of Hedge Fund Holders in Q1: 56
Pinduoduo Inc. (NASDAQ:PDD) is placed second on our list of 10 Chinese stocks hedge funds are selling amid crackdowns. The firm owns and runs an online ecommerce platform and is headquartered in Shanghai.
On August 25, investment advisory Benchmark kept a Buy rating on Pinduoduo Inc. (NASDAQ:PDD) stock but lowered the price target to $156 from $176, noting that the firm had reported mixed second quarter earnings.
At the end of the second quarter of 2021, 49 hedge funds in the database of Insider Monkey held stakes worth $5.2 billion in Pinduoduo Inc. (NASDAQ:PDD), down from 56 in the preceding quarter worth $6.2 billion.
In its Q1 2021 investor letter, Tao Value, an asset management firm, highlighted a few stocks and Pinduoduo Inc. (NASDAQ:PDD) was one of them. Here is what the fund said:
“Pinduoduo reported a strong quarter, reporting MAU of 720 million, now surpassing Taobao. However, it was overshadowed by a bigger news on Colin Huang resigning from Board and completely disassociating himself from PDD’s management & operation. Huang explained in his letter to shareholders that he would start fundamental research initiatives in food science. Although not entirely shocked (as he already stepped down from CEO July 2020), I am surprised by the fast pace of such transition. I remain confident in the organization and the culture Huang built but will monitor it closely.”
1. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders in Q2: 59
Number of Hedge Fund Holders in Q1: 89
Baidu, Inc. (NASDAQ:BIDU) is ranked first on our list of 10 Chinese stocks hedge funds are selling amid crackdowns. The firm provides a range of internet-related services, including search, across China. It operates from Beijing.
On August 13, investment advisory Oppenheimer maintained an Outperform rating on Baidu, Inc. (NASDAQ:BIDU) stock but lowered the price target to $320 from $355, underlining that the COVID-19 cases in China were impacting advertising budgets for the firm.
At the end of the second quarter of 2021, 59 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Baidu, Inc. (NASDAQ:BIDU), down from 89 in the preceding quarter worth $6.5 billion.
In its Q1 2021 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:
“We have also fully exited our stake in Baidu, following their outstanding performance during the period and their lower relative upside potential compared to other investment alternatives, which we will discuss below.
The Chinese technology platform company Baidu has also been held in the portfolios managed by Alejandro, Miguel and myself for several years. During this period, we have seen very high volatility in its share price, which we have taken advantage of to make significant rebalancing moves in our position (in fact, we even sold our entire position once, when we thought the stock’s upside potential was exhausted). After several years of instability, market sentiment turned very positive, putting an end to the historical advertising problems in the healthcare sector, the divestments in O2O (Online-to-Offline) businesses that continued to weigh on the company’s margins, the IPO of part of the iQiyi streaming business (which hid Baidu’s underlying cash generation capacity) and the tough competition from other industry giants such as Tencent and Alibaba, as well as the entry of new players with disruptive business models (ByteDance). At the same time, the company’s recent commitment to electric vehicles contributed even more to this change of narrative. Baidu’s share price rose almost fourfold from the March 2020 lows to all-time highs and reached a valuation where the margin of safety, in our view, was too narrow.”
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