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Chinese Stocks Come Back in Early Market Trading

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We know that the US-China trade war escalated quickly over the weekend. While President Trump threatened to impose a new round of tariffs, China responded by devaluing its currency. Investors panicked, and the US market experienced its worst decline in 2019. As a result, this decline impacted Chinese stocks Tencent and Alibaba as well and contributed to this sell-off.

In this article, we’ll look at their valuations and upside potential according to analyst estimates. Although there doesn’t seem to be a solution in sight for the trade war, does the recent sell-off provide an opportunity for investors seeking to invest in Chinese stocks?

Tencent Holdings: A heavyweight among Chinese stocks

Tencent Holdings’ (TCEHY) market cap is $435 billion. The stock has declined 7.3% this month and traded 16.0% below its 52-week high. Today, Tencent rose 1.8% and traded at $43.10 per share. TCEHY’s forward PE multiple is 23.5x. Comparatively, its earnings per share are expected to grow 21.0% in 2019 and 27.8% in 2020, indicating that the stock is undervalued.

Analysts have a 12-month average target price of $56.04 for Tencent, which is 30.0% above its current price. Year-to-date, Tencent stock is up 9.5%.

Could Alibaba continue to lead the Chinese stock rally?

Alibaba (BABA) has a market cap of $411 billion. This month, the stock has declined 9.4% and is trading 20.0% below its 52-week high. Today, Alibaba rose 2.7% and traded at $157.80 per share, and its forward PE multiple is 18.3x. Comparatively, its earnings per share are expected to grow 21.0% in 2019 and 27.7% in 2020, indicating that the stock is undervalued.

Analysts have a 12-month average target price of $217.88 for Alibaba, which is 38.0% above its current price. Year-to-date, Alibaba stock has risen 14.5%.

JD.com

JD.com (JD) has had a volatile year and has underperformed its Chinese peers Tencent and Alibaba over the last 18 months. Plus, the company’s market cap is $44.5 billion. JD stock has declined 11.0% this month and is trading 27.0% below its 52-week high.

JD stock rose 1.4% today and traded at $26.50 per share. Its forward PE multiple is 25.8x. Comparatively, its earnings per share are expected to grow 94.3% in 2019 and 51.5% in 2020, indicating that the stock is grossly undervalued.

Analysts have a 12-month average target price of $33.76 for JD.com, which is 27.0% above its current price. Year-to-date, JD stock is up 27.5%.

Baidu

Another underperformer among Chinese stocks, Baidu (BIDU) stock has declined 10.2% this month and is trading 57.0% below its 52-week high. Baidu traded flat today at $100.10 per share, and its forward PE multiple is 15.2x. Comparatively, its earnings per share are expected to fall 57.2% in 2019 and then rise 56.2% in 2020, indicating that this stock is undervalued.

Analysts have a 12-month average target price of $157.45 for Baidu stock, which is 57.0% above its current price. Year-to-date, Baidu stock has fallen 37.0%.

Sina

Sina (SINA) stock has declined 9.0% this month and is trading 58.0% below its 52-week high. The company’s stock gained 3.0% today and traded at $35.45 per share. Plus, its stock has a forward PE multiple of 11.5x. Comparatively, its earnings per share are expected to fall 16.0% in 2019 and then rise 19.0% in 2020, indicating that this stock is undervalued.

Analysts have a 12-month average target price of $58.23 for Sina stock, which is 66.0% above its current price. Year-to-date, Sina stock is down 33.7%.

The bottom line

Looking at today’s activity, all major Chinese stocks are undervalued and trading at a significant discount to the average Wall Street estimate. The US-China trade war still looms large, coupled with concerns over China’s sluggish domestic growth.

However, risk-oriented investors can still look to invest here. These stocks are market leaders in China and are expected to provide significant returns in the long run.

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