Chinese stocks are popular among investors despite U.S.-China relations being at the lowest level in decades. There are also fears about a possible delisting of Chinese stocks from the U.S. stock markets. What are the best Chinese stocks to buy now despite geopolitical tensions?
China is the world’s second-largest economy. It has addressed the COVID-19 pandemic well even though the health crisis originated in the country. Also, despite souring U.S.-China relations, several Chinese companies raised capital from U.S. markets in 2020 and capitalized on the booming IPO market. Investors also bought these IPOs despite delisting concerns.
Investing in Chinese stocks offers diversification.
Chinese stocks are a different asset class. Many of the Chinese companies are plays on the domestic consumption story, while others are international plays. While most of the major U.S. companies get a big chunk of their revenues from China, they aren't exactly a play on the Chinese markets in a strict sense.
Chinese stocks are a good investment from a diversification perspective. Also, from a valuation perspective, some of the Chinese stocks seem to offer better value after underperforming the U.S. and global stock markets over the last decade.
Best Chinese stocks to buy now
According to the U.S.-China Economic and Security Review Commission, there were 248 Chinese companies listed on U.S. markets as of May 5, 2021, with a market cap of $2.1 trillion. In contrast, there were 217 Chinese companies listed on the U.S. markets on October 2, 2020. Chinese companies seem to be loving U.S. listings despite fears of delisting and worsening U.S.-China relations.
The following Chinese stocks are good to buy now and hold for the long term.
- Alibaba (BABA)
- Baidu (BIDU)
- JD.com (JD)
- Xpeng Motors (XPEV)
- BYD Company (BYDDF)
Best Chinese internet stocks to buy
Currently, Alibaba, Baidu, and JD.com look like the best Chinese internet stocks to buy. Chinese tech stocks have been under pressure amid the crackdown by the country. Alibaba had to pay a hefty fine in the March quarter. However, from a valuation perspective, these stocks offer good value at the current prices.
Incidentally, Cathie Wood of Ark Invest has also invested in some of the Chinese companies including Alibaba, JD.com, and Baidu. In May, she increased the stake in JD stock. Alibaba stock is particularly interesting at these prices.
BABA stock has been under pressure ever since co-founder Jack Ma was critical of the country’s regulators. China also stalled the Ant Financial IPO and intensified the antitrust probe against the company.
However, the worst seems to be over for BABA stock. Now, its valuation is at almost the lowest level since it listed on the U.S. markets. With strong growth, improving margins in the cloud business, and tepid valuations, BABA stock is the best Chinese stock to buy for the long term.
Best Chinese EV stocks to buy
When it comes to EVs (electric vehicles), China has a lead over the U.S. even though Tesla, the most popular EV company, is based in the U.S. While NIO gets a lot of investor attention, BYD sold more EVs than NIO in the first quarter of 2021. It's also a diversified play and sells commercial vehicles, rail transit, batteries, and electronics.
From a valuation perspective, BYD looks undervalued compared to pure-play EV companies. Berkshire Hathaway is also an investor in BYD. Chairman Warren Buffett is well known for his value investing principles. BYD stock trades on the OTC markets under two tickers “BYDDF” and “BYDDY.”
Xpeng Motors looks like another good Chinese EV stock to buy. The company trades at a discount to NIO and looks like a reasonably-priced EV stock in an otherwise overvalued industry. The stock is down sharply from the highs and looks like a good long-term investment now.