Recently, congress passed legislation that forces foreign companies to delist from U.S. exchanges unless they fully comply with audit regulations. This move is applauded from both sides of the bipartisan divide as it allows the U.S. to take a harder line with Chinese companies. The aim is to have foreign companies show that they are independent of foreign governmental control whilst they trade on U.S. markets.
This legislation could affect many companies from Tencent to China Telecom. However, most of these companies will try to fully comply as they hold strong market positions in the U.S. Thus we rank our top 3 favorite Chinese-owned stocks, in the hope that they won’t be going anywhere soon.
When it comes to Chinese-owned stocks, Alibaba (NYSE: BABA) is the first one to pop into everyone’s mind. Alibaba is a mega-cap stock currently valued at around $718 billion. Alibaba looks a lot like Amazon, just in China; an e-commerce company with a cloud-computing business and food delivery service.
Alibaba has had a dip in the last 2 months as the Ant Group IPO — of which it holds a roughly 30% stake — was suspended from the Shanghai stock exchange. What was promised to be the largest IPO in the world, turned into a ‘corrective phase’ where its stock sunk 8% overnight. Currently, its stock is down a further 6% due to the news that Chinese regulators are now considering implementing antitrust regulations, specifically anti-competitive behavior regulations that could affect Alibaba.
However, much like Amazon, Google, or other mega-cap tech companies, Alibaba will continue to grow alongside the rise in online shopping trends. Added to the fact that Alibaba made a record-breaking $74 billion in sales on China’s annual ‘Singles Day’, this recent stock dip should be considered a buying opportunity.
JD.com (NASDAQ: JD) is the largest direct retailer in China, additionally, it has three branch-out businesses that are currently in the process of filing for an IPO. JD Health will IPO on the 8th of December in Hong Kong, JD Digits was supposed to IPO in Shanghai in September this year but due to more hardline regulations, the IPO has been postponed. The third, JD Logistics, is currently in talks to IPO in Hong Kong at some point in the future. JD itself recently went public on the Hong Kong stock exchange and whilst all this might seem rather complicated for an e-commerce business, it will protect the business from any future fall-out from the new U.S. regulations.
JD is currently popular with U.S. investors as it counts Walmart as a 5% shareholder and Google as a strategic partner. Furthermore, its recent earnings report saw $25.7 billion in net revenue, this is a 29% increase year-over-year (YoY), whilst its annual active user accounts increased 31% YoY to 441 million.
This company has a strong business with lots of diversification as well as a contingency plan for if relations with the U.S. continue to sour. This business comes in at a strong second in our favorite Chinese-owned companies.
NIO (NYSE: NIO), often referred to as the Chinese Tesla, managed to increase its vehicle sales in Q3 by 146.1% year-over-year (YoY). Bearing in mind that this was in the middle of a pandemic and global economic downturn, NIO saw an impressive 146.4% increase in its total revenues YoY to $666.6 million. Things are going very well for this electric vehicle company as its stock had soared 1,309% this year at its peak in late November.
One thing that has worried investors in the past about this stock is its cash burn, however, its recent results reported a turnaround in that area as well. With $3.3 billion in cash and equivalents, the company now has a buffer which will give it a good position from which to grow over the next year. NIO’s guidance for Q4 shows that it expects to continue its growth with a projected delivery of around 17’000 cars.
This company might not be selling as fast or in quantities similar to Tesla, but with many countries coming out stating that they will be banning petrol cars in the near future, NIO and many other EV car companies will be rushing to expand and market their products globally. This stock comes in at number 3 because it is although it is a riskier investment, it is one that looks to have a period of high growth in the future.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Poppy likes companies that go the extra mile. Her favorite stock is Amazon because she is fond of its innovation, variety, and creative solutions to sustainability.