Best China Stocks To Buy

Best China Stocks to Buy: The past 40 years have brought unprecedented growth and prosperity to China. Before 1979, the country was quite poor, in large part because of its isolation from the global economy. In 1979, dramatic adjustments to government policy opened China up to foreign investment and trade, and a number of free-market reforms changed the way business was conducted.

The result? China was transformed. Annual gross domestic product (GDP) grew by an average of 9.5 percent every year, prompting the World Bank to describe the phenomenon as “the fastest sustained expansion by a major economy in history.”

Roughly 800 million people left a life of extreme poverty behind, and today, Chinese consumers are the largest purchasing group in the world. Of course, that pace of growth couldn’t be sustained indefinitely, and it has slowed a bit in recent years. In 2018, it was below 7 percent, and by 2024, economists predict it will be around 5.5 percent.

The decline will continue, gradually, as it does with any mature economy, unless China turns its focus to new forms of economic growth that focus on innovation, services, and private consumption. Fortunately, the Chinese government is prioritizing a transition in focus, and it has launched initiatives to create the most advanced manufacturing capabilities in the world.

In recent months, the slowing Chinese economy and the on-going trade dispute between the US and China have caused some concern among investors. Fewer are choosing to add Chinese stocks to their portfolios. Many analysts believe this is a mistake. A number of major Chinese companies are poised for continued growth and substantial profits, making them an important component of a diversified portfolio.

So, which are the best China stocks to buy? These are some of the companies getting a lot of attention from experts in Chinese investment:

Alibaba Stock: The E-Commerce Giant 

When it comes to e-commerce, no one does it better than Chinese tech giant Alibaba.

Since its September 2014 IPO, stock prices have tripled. Alibaba [NYSE: BABA] is growing and expanding within its core marketplace, as well as into adjacent markets, and management has promised that Alibaba [NYSE: BABA] will serve more than one billion consumers by the end of fiscal 2024.

That figure sounds overly optimistic until you consider Alibaba’s current customer base. The business already has 860 million active customers in the books for 2019 – 730 million of whom are Chinese and another 130 million from international markets.

The one billion customer goal requires compound growth of 3 percent each year for the next five years. Most analysts believe this is achievable, as Alibaba already owns more than half of China’s e-commerce market.

Alibaba [NYSE: BABA] is projected to grow sales by 30 percent and earnings by 28 percent over the next twelve months, yet current stock prices don’t reflect these expectations because of concerns with the economic slowdown and the US-Chinese trade dispute. That means investors have an opportunity to buy Alibaba at a somewhat discounted rate if they buy today.

Tencent Holdings Stock: WeChat + Gaming + Ads

Gaming and social media are big business, especially in China. Combining the two in a single innovative tech company is a formula for success.

Tencent Holdings is leading the Chinese market in these areas through its WeChat app, which includes everything from ride-hailing and food delivery to video streaming.

WeChat boasts more than one billion monthly active users, and that figure is growing rapidly. In the second quarter of 2019, Tencent’s social network revenues grew by 23 percent.

Believe it or not, WeChat isn’t even Tencent’s biggest business. The company’s most lucrative division is gaming, and revenues are still rising.

For the second quarter of 2019, the company reported an 8 percent increase in gaming revenues, and that figure is expected to explode with the recent launch of 10 new games.

Finally, Tencent [OTC: TCEHY] is hard at work on growing its advertising business. Revenues from this division increased 16 percent year over year in the second quarter of 2019. Combined, the three revenue streams gave Tencent total revenue growth of 21 percent.

Tencent [OTC: TCEHY] isn’t limiting its portfolio of assets to China. There has been a push to acquire stakes in international gaming businesses that show promise.

For example, Tencent recently bought 29 percent of the Norweigen gaming company Funcom, and it already owns Riot Games, Supercell, and part of Epic Games and Bluehole – among others.

By diversifying assets to include global game developers, Tencent mitigates the risk of financial ruin should censorship or regulatory changes cause issues with the lucrative Chinese games.

Overall, Tencent Holdings is a major player in Chinese tech, and by all indications, it will continue to grow. That makes it a solid choice for investors who haven’t yet purchased shares.

JD.com: Direct Sales E-Commerce Wins

Alibaba leads in e-commerce market share among Chinese consumers, however JD.com offers an entirely different experience.

In terms of direct sales – versus Alibaba’s method of connecting consumers and third-party merchants – JD.com is the winner. In overall market share, JD.com controls 16.7 of China’s e-commerce, but it is number one in the direct sales space.

JD.com [NASDAQ: JD] has an expansive nationwide logistics network that allows it to purchase and store inventory, then deliver directly to consumers.

While this is certainly a costly business model, JD.com offers customers a seamless experience from start-to-finish, along with unmatched customer service. This has been a strong selling point for Chinese consumers in search of luxury goods.

In addition to its main rival, Alibaba, JD.com [NASDAQ: JD] has seen some competition from the group sales platform developed by Pinduoduo.

In response, JD.com launched its own group sales website and app, Jingxi. The group sales service will feature connections through Tencent’s WeChat, improving users’ ability to form bulk shopping clubs.

JD.com hasn’t had the same spectacular growth as some other Chinese tech companies, but its financial results have certainly been respectable. In fact, for the second quarter of 2019, JD.com [NASDAQ: JD] exceeded analysts’ expectations by quite a bit.

Revenues rose 23 percent to $21.9 billion – more than $1 billion higher than predicted. Purchases came from  321.3 million individual customers who are spending more per transaction than in previous quarters.

Adjusted net income went up to $518.4 million, and business leaders predict another 20 percent to 24 percent in revenue growth for the third quarter.

These strong results haven’t pushed stock prices back to their all-time highs, which means it’s a good time to consider investing. It may be that shares are currently undervalued, and future growth could bring significant gains.

Baozun Stock: Online Storefronts Made Easy

In a world where e-commerce is quickly becoming consumers’ preferred shopping channel, businesses need an online presence to compete. Boazun makes the process of launching an online store simple with intuitive digital storefronts, IT services, fulfillment services, customer service, marketing campaigns, and more.

For the moment, there are no other Chinese companies operating in this space, which makes it easy for Boazun to lead. In fact, instead of trying to steal market share from Boazun [NASDAQ: BZUN], major e-commerce players like Alibaba are integrating Boazun services into their own platforms.

Boazun [NASDAQ: BZUN] has had impressive growth in recent quarters, and second quarter 2019 results were no different – so much so that analysts were surprised when investors cashed out after earnings were announced.

It may be that those investors wanted to take their profits before a downturn in the Chinese economy erased gains, but industry experts believe that is a short-sighted strategy.

Boazun’s annual revenue rose 47 percent to a total of $248.2 million, which was $24 million higher than even the most optimistic projections.

Adjusted net income went up 46 percent to $12.3 million, and business leaders promise even better results in coming months.

The company’s third quarter guidance includes an estimated 35 percent to 40 percent increase in revenues, and analysts project a 60 percent increase in earnings. With today’s share prices on the lower side, now is the time to buy Boazun [NASDAQ: BZUN].

Best China Stocks To Buy: The Bottom Line

The bottom line is that all of these companies carry some risk, but each has high growth potential. Their leaders are open to continuous improvement, and as a whole, the organizations are constantly innovating.

Perhaps more importantly, these businesses have their finger on the pulse of Chinese consumers, and they are successfully crafting product lines and services that fit current needs and preferences.

Adding these companies to stock portfolios exposes investors to the rewards that may come as the Chinese economy continues to mature, and these stocks offset some of the risks inherent in holding only US-based companies.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.