In the past few months, Chinese stocks have made a strong recovery as the country’s economy gets back on its feet. Experts believe that this rally will continue to gain steam in the days that follow. After a sharp decline at the start of the year, China saw local and international demand pick up. In July the Shanghai Composite Index that tracks Chinese stocks jumped 16.5%.
Wuhan, China was ground zero for the novel coronavirus pandemic but also among the first places to declare a Covid-free zone. With lockdowns, restrictions and regular testing, the country prevented the spread of the virus within its borders. This success in containing the virus was one of the key reasons for the strong economic rebound.
Chinese stocks have performed well this year, making them a valuable addition to your portfolio. With that in mind, here are three stocks I would recommend adding to your portfolio:
Chinese Stocks: Alibaba (BABA)
Regardless of the investing environment, Alibaba stock will always remain a great investment. This rings especially true in an environment where we live, work and play remotely. The e-commerce company is one of the largest in the world with a market capitalization of half a trillion dollars.
The pandemic accelerated the growth of online marketplaces and Alibaba was a key beneficiary of this trend. At the core of Alibaba is Taobao, where merchants can sell their goods on the platform. The platform saw an 88% increase in the number of sellers as on the platform as offline merchants took their business online. Alibaba’s other subsidiaries, Freshippo and Cainiao also experienced an increase in growth.
Alibaba Cloud, the biggest cloud provider in China saw an increase in usage during the pandemic. But despite the key role the company’s services played this past year, its earnings took a hit due to low revenue and high costs. Additionally, the collapse of global trade led to more losses.
Nevertheless, in an increasingly digital economy, Alibaba stock will benefit from growth in the long-term. This Chinese stock is a great investment despite any short-term pullbacks.
Another Chinese company that has benefitted from a shift to the digital economy is JD.com. As the physical economy shutdown, many traditional retailers took their businesses to the website. JD.com works like Amazon and allows users to virtually sell their products. There are currently 417 million users on the platform.
With a pandemic-resistant business model, JD.com put up some impressive growth numbers in 2020. The Chinese stock rallied at more than 67% this year, which was reflective in its most recent earnings report. Revenue spiked by 30% to $28.5 million, which beat analysts’ $27.4 million estimate. Earnings per share (EPS) also popped from 33 cents to 50 cents.
JD.com has a business model that is in tune with the changes in the global economy. The company has come a long way since its IPO in 2014 and will only continue to grow. Although the stock is currently trading at a premium (35 times adjusted earnings), it’s a stock worth buying before prices go higher.
The Chinese 5G Market is booming and the tech company, Xiaomi is well-poised to benefit from this. Once a small startup, the company is now a major player in the 5G space. This is in addition to the impressive line of products it has in its portfolio. These include TVs, vacuum cleaners, hardware and smartphones. The company believes in transparency and has vowed not to make more than a 5% margin on sales.
Xiaomi’s largest revenue driver is its 5G network. With the service catching steam across the globe, the tech giant is looking to carve its niche in the market. The cost-effective pricing model has made it popular in countries like India and China. The large market in India has kept the company’s earnings strong despite a weak economy. Xiaomi also holds the top position in Spain and France’s smartphone market.
The company’s strength lies in its innovative capabilities. Xiaomi is always looking to improve its existing products to better serve its customers. More recently the tech-giant introduced the world’s first translucent TV and fully automated phone. These products will push this Chinese stock to new highs in the coming months. Given the growth prospects, it would be wise to jump on this stock before prices go higher.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.
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