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Equity investors have been mostly averse to investing in Chinese stocks over the past year due to the strict zero-Covid norms and regulatory scrutiny in the property and technology sector. However, the recent easing measures and reopening of the economy have now put a focus back on top China stocks.
China markets still look volatile but the risks for the equity market have fairly receded compared to the past two years. With Beijing’s more accommodative stance, portfolio managers are now turning positive on China’s equity market. Moreover, investment experts believe China’s economy will stage a strong recovery in 2023.
In this context, there are certain sectors which are expected to shine. Invesco’s Mike Shiao believes that consumer, healthcare and internet firms in China will benefit from the domestic demand recovery in China. Additionally, China’s new energy vehicle segment is leading the charge around the globe with exemplary sales and profits.
A major concern for Beijing has been the ageing population of the country, which is now supporting some of the key healthcare companies in the country.
Below we look at some of the top China stocks that can rise higher based on this outlook for specific sectors. Most of these stocks are also traded in the US through American Depository Receipts (ADR) and are easily accessible to global investors.
Top China stocks to benefit from the recovery story
China’s consumption story has lagged over the past year, but Beijing’s focus on a consumer-led economy has been affirmed by the “common prosperity” factor and the 12-Year Growth Plan. With technology firms seeing less regulatory scrutiny over the past couple of months, internet-related stocks have come into focus.
Pinduoduo
While Alibaba and JD.com are notable names abroad, Tencent-backed e-commerce giant Pinduoduo has started looking attractive due to its massive strides. Founded by an ex-Google employee, Colin Huan, the platform made its first overseas push by diversifying in the US market under ’Temu’.
Pinduoduo is among the biggest marketplaces for agricultural products in China and enables direct sales between small-scale farmers and consumers by eliminating middlemen. However, Pinduoduo now offers many other products, ranging from apparel and electronics.
“The overseas business is one of the opportunities we see… (we) see many peers in the industry achieving good results, so we believe it’s a direction worth trying out,” CEO Lei Chen said previously.
Listed on the NASDAQ under the ticker PDD, Pinduoduo has registered a gain of over 50% in the past year, even as other Chinese ADRs took a beating. The company’s price-to-earnings ratio stood at 32.37.
“In the past few months, various product categories of Pinduoduo, such as beauty and cosmetics, consumer electronics, and agriculture, have performed particularly well,” says Insight Provider Baptista Research.
BYD
Next is the new energy vehicle leader Build Your Dreams, better known as BYD Company Ltd, which recently surpassed Tesla in global electric vehicle sales. BYD has seen exemplary growth in 2022, with sales rising over 200% compared to 2021.
The company has established itself in over 70 countries across six continents and operated mainly in the following segments — auto, electronics, new energy and rail transit. BYD has also benefitted from Beijing’s policy to support electric vehicle production. However, the company’s stock suffered in late 2022 after Warren Buffet’s Berkshire Hathaway cut its stake in the firm.
BYD is listed on the Shenzhen (002594.SZ) and Hong Kong (1211.HK) stock exchanges. Over the past year, the company’s Hong Kong-listed shares have dropped 4.64%. The stock has a price-to-earnings ratio of 51.83.
“The rising deliveries of Han and Tang models are driving BYD’s top line. Solid execution capabilities and expansion efforts outside China, particularly in the European market, will further fuel the stock. The company’s revenues have been growing rapidly and unlike other pure EV players based in China, BYD has been making profits for years,” as per US-based Zacks Investment Research.
JinkoSolar
When tracking top China stocks, the country’s prowess in the solar energy sector cannot be ignored. Over 80% of all solar panel manufacturing takes place in China, and with the recent volatility in energy markets and a shift to renewables, listed Chinese solar firms are due to reap rewards.
JinkoSolar, headquartered in Shanghai, China, is among the largest and most advanced solar module manufacturers globally. The company supplies its solar products and sells solutions and services to a varied global utility, commercial as well as residential customer base in China and other countries. The earnings report of JinkoSolar for the first half of 2022 shows that the company’s performance improved considerably year-over-year, with operating revenue of $33.407 bn, up 112.44%. The company also shipped a total of 18.92GW solar products globally, up 79% year on year.
Listed on the NYSE under the ticker JKS, JinkoSolar has given more than 25% returns in the past year. The stock has a price-to-earnings ratio of 84.68.
Trip.com
China’s travel resurgence due to the easing of restrictions has led to a sudden rise in travel stocks, with Trip.com’s NASDAQ-listed shares registering 52.17% gains in the past year. Chinese multinational online travel company Trip.com Group was founded in 1999. The company had been making losses during the pandemic but returned to the positive during the quarter that ended September 30.
After China lifted Covid measures, Mizuho, Morgan Stanley, and Daiwa Capital Markets among a few other raised their ratings and price target for the stock of Trip.com. Recently, BlackRock and Vanguard also increased their stakes in the company.
Sinopharm
The last name on our list is Sinopharm, which is involved in the wholesale and retail of drugs, medical devices and other healthcare products. The company’s registered name is China National Pharmaceutical Group, and the firm is owned by the government. Sinopharm was also one of the firm companies in China to develop a vaccine for Covid-19.
Listed in Hong Kong, Sinopharm’s stock price has jumped at least 25% during the past two months. Over the past year, the stock has delivered returns of 9.65%. The price-to-earnings ratio of the stock stood at 6.90.
“China has already dismantled many of their harshest pandemic control measures. The focus has now shifted to the treatment of the Covid-19 from prevention and control of infection earlier. With an aim to treat severely ill patients, China is boosting supply of life-saving medical devices as well as therapies. As the leading pharmaceutical distributor, SinoPharm should benefit from this,” as per Insight Provider Tina Banerjee who publishes on Smartkarma.
