Rallying Chinese stocks: How to play China bulls

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By Mary-Lynn Cesar for Kapitall.

For the last four years, Hong Kong stocks have been on fire. The MSCI Hong Kong Index had consistently outperformed the MSCI China Index since early July 2010, and  Bloomberg writes that the Hong Kong index had rallied 160% over the course of the period. 

These days, however, investors are ditching Hong Kong stocks. Strategists from from BNP Paribas SA, Citigroup Inc., HSBC Holdings Plc, Standard Chartered Plc, and UBS AG have downgraded Hong Kong stocks over the last two months. Several financial services firms, including Credit Suisse Group AG, expect the developer-and-bank-heavy index to fare less well this year thanks to the Federal Reserve's stimulus reduction. Furthermore, according to  Bloomberg , the MSCI Hong Kong Index was trading at a P/E of 16-its highest level since 2002-at the end of June while the MSCI China Index was trading at a P/E of 9.8. 

So investors are packing up and trading their Hong Kong shares for Chinese ones. In addition to being cheaper than the city's offerings, Chinese stocks growing in appeal because of Premier Li Keqiang's insistence that the nation will meet its 7.5% growth target . In June, Keqiang wrote an editorial  (paywall) in  The Times , stating, "Despite considerable downward pressure, China's economy is moving on a steady course. We will continue to make anticipatory and moderate adjustments when necessary. We are well prepared to defuse various risks. We are confident that this year's growth target will be met." 

Since banks and financial services companies are moving from Hong Kong to China, we decided to run a screen on Chinese stocks that incorporates this shift in investment activity. We began by screening a group of Chinese stocks with  significant net institutional purchases comprising 5% or more of share float during the current quarter . Purchases of this size indicate that institutional investors-specifically hedge funds and mutual funds-are bullish towards these stocks and expect them to outperform into the future. 

We then looked for stocks that were  rallying above their 20-day, 50-day, and 200-day simple moving averages ( SMA ) as of 12:45 PM EST. This signals that the stocks have strong upward momentum. 

We were left with three stocks on our list. Do you think hedge funds on the right track with these rallying Chinese stocks? Use this list as a starting point for your own analysis.

Click on the interactive chart to view data over time. 

1. AutoNavi Holdings Limited ( AMAP , Earnings , Analysts , Financials ): Provides digital map content and navigation and location-based solutions in the People's Republic of China ( PRC ). Market cap at $1.45B, most recent closing price at $20.88.

The stock is rallying 0.22% above its 20-day SMA, 0.33% above its 50-day SMA, and 15.52% above its 200-day SMA.

Net institutional purchases in the current quarter at 11.4M shares, which represents about 39.24% of the company's float of 29.05M shares. The two top holders of the stock are GLG Partners LP with 2.5 million shares and Eton Park Capital Management LP with 2.5 million.

2. Bitauto Holdings Limited ( BITA , Earnings , Analysts , Financials ): Provides Internet content and marketing services for the automotive industry in the People's Republic of China. Market cap at $2.02B, most recent closing price at $46.73.

The stock is currently rallying 7.97% above its 20-day SMA, 18.66% above its 50-day SMA, and 47.50% above its 200-day SMA.

Net institutional purchases in the current quarter at 1.9M shares, which represents about 8.4% of the company's float of 22.62M shares. The two top holders of the stock are FIL LTD with 3.5 million shares and Vontobel Asset Management, Inc. with 1.8 million shares.

3. RDA Microelectronics, Inc. ( RDA , Earnings , Analysts , Financials ): Designs, develops, and markets radio-frequency and mixed-signal semiconductors for cellular, broadcast, and connectivity applications. Market cap at $846.39M, most recent closing price at $17.52.

The stock is currently rallying 1.39% above its 20-day SMA, 2.73% above its 50-day SMA, and 1.23% above its 200-day SMA.

Net institutional purchases in the current quarter at 1.8M shares, which represents about 7.92% of the company's float of 22.73M shares. The two top holders of the stock are IDG-Accel China Growth Fund Associates L.P. with 26.5 million shares and Warburg Pincus LLC with 17.1 million shares.

(List compiled by Mary-Lynn Cesar. Institutional buying data sourced from Fidelity. Monthly return data sourced from Zacks Investment Research. All other data sourced from finviz.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: SMA , PRC

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