Hundreds of Chinese companies are listed on U.S. markets. But which are the best Chinese stocks to buy or watch right now? Tencent Holdings (TCEHY), NetEase (NTES), Futu Holdings (FUTU), Bilibili (BILI) and Trip.com (TCOM).
XChina is the world's most-populous nation and the second-largest economy with a booming urban middle class and amazing entrepreneurial activity. Often dozens of Chinese stocks are among the top performers at any given time, across an array of sectors.
Best Chinese Stocks Across Many Industries
As the world's largest internet market, it's no surprise to see big growth from China stocks focusing on e-commerce, messaging or mobile gaming. Notable Chinese internet stocks include:
In electric vehicles, several Chinese companies are becoming serious rivals to Tesla (TSLA) in the world's biggest auto market.
Several Chinese financial firms or brokerages listed in the U.S.
Several China stocks are in solar power
For-profit education Chinese stocks are a notable non-tech sector.
- New Oriental Education (EDU)
- Tal Education (TAL)
- 17 Education & Technology Group (YQ)
- GSX Techedu (GSX).
Don't forget stocks in other fields, such as beauty products maker Yatsen (YSG) or data-center operator GDS Holdings (GDS).
Chinese Stock Risks
Investors should be aware of significant risks with investing in Chinese stocks. The authoritarian state and its regulators can impose sweeping restrictions, fines or bans on major companies, often with little notice or transparency.
Alibaba ran afoul of regulators in late 2020, with regulators opening probes into internet platforms and suspending the Ant Group IPO. In April, China fined Alibaba $2.8 billion for anti-competitive actions and ordered it to change various practices.
Ant Group is limiting the scope of some of its businesses to comply with regulators' demands.
Further antitrust probes and fines are likely for other internet giants.
Accounting fraud, while less likely with institutional-quality names such as Alibaba, remains a concern. Luckin Coffee admitted to widespread fraud in 2020. Fraud charges alone can trigger massive share price losses.
Meanwhile, a new U.S. law could force Chinese companies to delist from U.S. markets. That threat isn't imminent, and could be averted with negotiations between the Treasury Department and Beijing over accounting oversight. Still, it's something that could loom large for China stocks in the coming years.
China Stock Investing Via ETFs
One way to minimize individual China stock risks is via ETFs. Another advantage of buying ETFs is that a growing number of Chinese companies are listing in Hong Kong or Shanghai, instead of in addition to the U.S.
KraneShares CSI China Internet ETF (KWEB) tracks major Chinese internet companies. Many Chinese stock holdings in the KWEB ETF are U.S.-listed or traded, such as Alibaba stock, JD.com, Tencent, Pinduoduo and Bilibili, but KWEB also holds companies listed on Chinese markets. Direxion Daily FTSE China Bull (YINN), a three-times levered ETF of the 50 largest companies listed in Hong Kong, including Alibaba, JD.com and Tencent stock, but its biggest weights are in financials. (The Direxion Daily FTSE China Bear (YANN) is a three-times levered ETF shorting Hong Kong's biggest companies.)
Stock Market Trend Key
As always, investors should be following the overall stock market trend, adding exposure in confirmed uptrends and paring exposure or going fully to cash in corrections or bear markets. Right the stock market rally is looking strong.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.
Best China Stocks To Buy: Key Ingredients
Focus on the best stocks to buy and watch, not just any Chinese companies.
IBD's CAN SLIM Investing System has a proven track record of significantly outperforming the S&P 500. Outdoing this industry benchmark is key to generating exceptional returns over the long term.
Look for companies that have new, game-changing products and services. Invest in stocks with recent quarterly and annual earnings growth of at least 25%.
Start with those with strong earnings growth, such as Alibaba or Pinduoduo stock. If they're not profitable, at least look for rapid revenue growth as with Nio stock. The best China stocks should have strong technicals, including superior price performance over time. But we'll be highlighting stocks that are near proper buy points from bullish bases or rebounds from key levels.
Truth be told, many Chinese stocks are out of favor right now. Whether it's a general malaise for growth stocks or EV names such as Nio and Xpeng, or a regulatory crackdown for Alibaba, JD.com and other internets, U.S.-listed Chinese stocks have generally not fared well in 2021.
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Best Chinese Stocks To Buy Or Watch
| Company | Ticker | Industry Group | Composite Rating |
|---|---|---|---|
| Tencent | TCEHY | Internet-Content | n.a. |
| Bilibili | BILI | Internet-Content | 51 |
| Futu Holdings | FUTU | Finance-Investment banks/brokerages | 99 |
| NetEase | NTES | Computer Software-Gaming | 57 |
| Trip.com | TCOM | Leisure-Travel booking | 44 |
So let's analyze these five top China stocks: Tencent stock, Bilibili stock, Futu stock, NetEase stock and Trip.com stock.
Tencent Stock
Tencent is a Chinese messaging, gaming and payments giant and the archrival of Alibaba. It owns significant stakes in many Chinese companies, including JD.com and Tencent Music Entertainment.
Tencent earnings growth has accelerated for three straight quarters, to 37% in the fourth quarter. Tencent stock has an EPS Rating of 96 out of a best-possible 99.
There are reports that China could levy a big antitrust fine vs. Tencent, though perhaps not as large as the one imposed on Alibaba.
On Feb. 12, Tencent stock hit a record 99.40, then retreated until late March. Since then shares have been moving sideways, though they've tilted higher since finding support just above their 200-day line on April 9. But Tencent stock is stuck below its 50-day line. Reclaiming that level will be the first step toward building the right side of a base. The current buy point is 99.50, according to MarketSmith analysis.
But the relative strength line has been retreating since Feb. 12. The RS line, the blue line in the charts provided, reflects a stock's performance vs. the S&P 500 index.
Tencent stock is listed in Hong Kong and not in the U.S. That's why it doesn't have an IBD Composite Rating. Its shares trade over the counter with the ticker TCEHY.
Tencent stock has a market cap of $777.5 billion vs. $633 billion for Alibaba, $164 billion for Pinduoduo and $121 billion for JD.com.
Bilibili Stock
Bilibili provides an online entertainment platform targeting younger generations in China. In addition, the platform includes videos, live broadcasting, and mobile games.
The company is not yet profitable, and is projected to keep losing money through at least 2022. But sales growth has accelerated for the last three quarters, with Q4 revenue up 104% to $588.4 million.
Bilibili stock nearly tripled from a late November breakout to the Feb. 11 peak of 157.66. Shares then corrected 43% to 90 on March 25. Since then, BILI stock has been starting to build the right side of a base. Bilibili stock retook its 50-day line recently.
The RS line has fallen significantly since early February after a big uptrend.
Futu Stock
Futu Holdings is a Chinese online brokerage and wealth management firm.
In the past four quarters, Futu earnings per share have skyrocketed 300%, 300%, 999% and 800%. Revenue growth has accelerated for five straight quarters, from 13% to 283%. The EPS Rating is only a 71, but the trend is clearly improving. The Composite Rating for FUTU stock is a best-possible 99, a rarity today even for the best Chinese stocks.
Since clearing a downward-sloping trend line at the end of 2020, FUTU stock erupted for a gain of more than 480% to its Feb. 10 peak of 204.25. Shares then lost more than half their value by late March 25 before rebounding again. On April 19, FUTU stock exploded for a 16% gain, breaking out of a deep, loose cup-with-handle base. But shares plunged 23% the following session on a proposed stock offering, which priced a couple days later.
FUTU stock has bounced back somewhat, trading around its 50-day line. If it continues to recover, investors might use 178.28, just above the April 19 high, as at least an early entry. The RS line this China stock leader is off highs but that follows a stretch of massive outperformance.
NetEase Stock
The mobile gaming giant has been profitable for years, but EPS tumbled 23% and 56% in the last two quarters. As a result, NTES stock's EPS Rating has dropped to 46. But NetEase earnings should climb 24% in 2021 and 17% in 2022.
Revenue growth has accelerated for three straight quarters, then held steady at 34% in the latest period.
NTES stock has been a leading U.S.-listed China stock since 2000.
NTES stock is starting to the right side of a cup base, recently reclaiming its 50-day line. The consolidation is only 26% deep, much better than many Chinese stocks. NTES stock bottomed in late March, just above its 200-day line and right around the top of a prior base, both natural areas of support.
The buy point for NetEase stock is 134.43.
The Composite Rating for NTES stock is 57.
Trip.com Stock
Trip.com is a China-based online travel site, but serving customers around the world. Brands include Ctrip, Qunar, Trip.com and Skyscanner.
Due to the coronavirus crisis, Trip.com lost money in the first half of 2020. Profits returned in Q3 and Q4, falling 35% and 4%, respectively, vs. a year earlier. Revenue plunged throughout 2021. With the pandemic fading and travel returning, analysts expect Trip.com to earn 49 cents a share in 2021 and $1.64 in 2021, vs. $1.54 in 2019 and a 23-cent loss in 2020.
Trip.com stock is just below a 40.99 buy point from a narrow double-bottom base. The middle of the W is just above the midpoint of the base, so it's valid. On April 28, Trip.com stock reclaimed its 50-day line. On April 29, TCOM stock cleared the buy point, but reversed lower.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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