7 Chinese Stocks to Buy as the Asian Giant Reopens
When the pandemic first erupted in China, the government kept the nation under a tight zero-Covid policy, thus clouding the narrative for Chinese stocks to buy. However, late last year, Beijing said it would start reopening its economy, the world’s second largest. Then, at the start of last week, Reuters reported that a stream of travelers took advantage of the loosened restrictions.
“After three years, mainland China opened sea and land crossings with Hong Kong and ended a requirement for incoming travelers to quarantine, dismantling a final pillar of a zero-COVID policy that had shielded China’s 1.4 billion people from the virus but also cut them off from the rest of the world,” stated Reuters. Moving forward, the end of restrictive policies should bode well for Chinese stocks to buy.
To be sure, many fundamental challenges remain. As well, many Chinese stocks to buy already soared under the buy-the-rumor, sell-the-news concept. Still, with consumers there being largely dormant for so long, the resultant boon in spending may sustain for a while.
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China Southern Airlines
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As the flagship corporation of China, Alibaba (NYSE:BABA) deserves special consideration among Chinese stocks to buy. With the underlying economy finally reopening, consumers will likely enjoy greater income predictability. Because the government lifted a major variable, spending across all platforms – including e-commerce – may rise. Ultimately, this should bode well for BABA stock.
Indeed, while BABA slipped 11% in the trailing year, on a year-to-date basis, shares stormed higher by more than 27%. Moreover, Wall Street analysts rate Alibaba as a unanimous strong buy. And that’s out of 16 analysts, not this two or three analysts business. Further, their average price target stands at $138.53, implying potential upside of more than 18%. On the financials, Alibaba enjoys a decently stable balance sheet. Its cash-to-debt ratio pings at 3 times, ranked better than over 79% of the competition. Objectively as well, BABA rates as undervalued, with the market pricing shares at 12.3-times forward earnings. In contrast, the sector median is 15 times.
Yum China (YUMC)
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Stressful events tend to spark emotional eating. And few events collectively imposed stress quite like Covid-19. Therefore, Yum China (NYSE:YUMC) – which features many popular fast-food brands – should perform very well. To be honest, it’s an obvious idea among Chinese stocks to buy based on the underlying country’s reopening.
In the trailing year, YUMC gained more than 29%. That’s simply a staggering figure when you consider 2022’s global context. Of course, most of these gains came late. In the trailing half-year period, shares swung higher by more than 31%. And in the young year so far, YUMC moved up nearly 7%. Primarily, hedge funds love Yum China, with TipRanks noting that sentiment among these institutional investors rate as very positive. Also, YUMC enjoys some decent underlying financial strengths. For instance, the company’s cash-to-debt ratio stands at 1.73 times, better than over 81% of its rivals. Also, it’s a very profitable business.
China Southern Airlines (ZNH)
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One of the more intriguing ideas among Chinese stocks to buy is China Southern Airlines (NYSE:ZNH). Per its public profile, China Southern represents one of the nation’s big three airliners. It’s also one of the largest in the world based on passengers carried. Of course, with China reopening, this potentially opens the floodgates for air travel. Apparently, market participants believe in the above thesis. In the trailing year, ZNH stock gained 15%, beating out many if not most U.S. carriers. Notably, shares gained almost 6% for the year. And in the trailing half-year period, ZNH gained over 22%, with traders anticipating the reopening announcement.
To be fair, China Southern represents one of the riskiest names among Chinese stocks to buy based on objective financials. Currently, the company’s balance sheet is a mess. As well, long-term performance indicators for revenue and earnings ping deeply in red ink.
Still, with investments like ZNH, prospective investors must extend some rope. Covid-19 hit the airliners cruelly hard. However, the bounce-back of the world’s second-largest economy should augur positively for China Southern.
ZTO Express (ZTO)
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Headquartered in Shanghai, China, ZTO Express (NYSE:ZTO) is one of the leading express delivery companies in China in terms of parcel volume, per its website. While the company carried packages during the zero-Covid-policy days, it could enjoy a significant rally with the restrictions gone. For instance, in the U.S., e-commerce as a percentage of total retail sales fell conspicuously after peaking in the second quarter of 2020. However, since Q1 of last year, this metric has been steadily rising. While China is obviously not the U.S., reduced restrictions may have a positive effect on consumer sentiment generally.
Further, the market recently turned up for ZTO. While it lost 8% in the trailing year, shares gained 7.5% in the trailing month. As with Alibaba, ZTO features a unanimous strong buy consensus – although with four analysts, to be fair. Finally, the company enjoys a strong balance sheet, particularly a cash-to-debt ratio of 1.45 times. This metric ranks better than over 74% of the industry. Thus, ZTO represents a worthy wager among Chinese stocks to buy.
TAL Education (TAL)
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Although China’s reopening should augur well for Chinese stocks to buy tethered to commerce, it’s not the only sector that will likely enjoy benefits. Fundamentally, TAL Education (NYSE:TAL) and its ilk should perform robustly throughout the new year. As an after-school education and tutoring, TAL already enjoyed significant relevancies. However, Covid-19 brought a new urgency to the academic arena.
Back during the initial impact of the pandemic, Chinese authorities limited face-to-face teaching. However, if their experience is like ours, the sudden transition to remote learning protocols affected everyone, from teachers to parents to students. In other words, it’s very possible that China’s educational rigor took a hit. Fortunately, that’s where TAL can fill the opportunity gap.
To be fair, TAL presents risks. Though it features a strong buy consensus view, analysts’ price target implies a share price drop of almost 34%. Still, TAL enjoys a solidly stable balance sheet. And based on its price-to-tangible-book ratio of 1.53, it’s undervalued. Thus, TAL could be one of the Chinese stocks to buy for speculators.
Silicon Motion Technology (SIMO)
Silicon Motion Technology (NASDAQ:SIMO) is an American-Taiwanese firm so it’s not “perfectly” one of the Chinese stocks to buy. However, the NAND flash controller integrated circuits specialist does significant business with the China’s data center market via an acquisition. Fundamentally, then, with China’s reopening, it’s reasonable to expect greater tech activity, thus boosting SIMO stock.
Now, on paper, SIMO represents one of the riskiest ideas. In the trailing year, shares fell 29%. Further, recent performances leave much to be desired. For example, for the year so far, SIMO gained just a bit under 2%. Nevertheless, if you give weight to analyst ratings, SIMO deserves a closer look. For one thing, Silicon Motion enjoys a strong buy consensus view. If that’s not enough, their average price target stands at a lofty $88.25, implying potential upside of 35%.
Finally, Silicon Motion benefits from strong overall financials. To boot, the market prices SIMO at 10-times forward earnings, well below the sector median of 18.4 times.
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Based on broader fundamentals, Autohome (NYSE:ATHM) might seem unusually risky. If you’re looking for a higher-probability wager among Chinese stocks to buy, you may want to consider the top names. According to its corporate profile, Autohome is the leading online destination for automobile consumers in China. However, with global recession fears dominating the news cycle last year, fewer people wish to buy a car.
Still, the decision isn’t up to the consumer. Instead, it’s up to the vehicle. For instance, in the U.S., the average age of vehicles on roadways hit a record 12.2 years. Once cars break down, it’s many times best to replace them rather than repair money pits. Again, China isn’t the U.S., I get that. However, the same principle might apply, thus possibly making ATHM one of the Chinese stocks to buy.
Further, analysts like Autohome, rating the underlying investment as a consensus moderate buy. As well, the company offers surprisingly strong financials. Most notably, Autohome features no debt, thus benefitting from flexibility during these difficult times.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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