Are these the best Chinese stocks to buy in 2022?
Chinese stocks remain undervalued, which could mean attractive entry points for investors. We look at 10 of the best Chinese shares to consider trading.
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Why should you trade these Chinese stocks?
The Hang Seng Index, which tracks the H-share performance of the largest Chinese companies listed on the Hong Kong Stock Exchange, is down by over 15% in 2022. Analysts believe the lower price presents investors with opportunities to add these ten stocks to their portfolio.
Alibaba Group Holding Ltd (HKG: 9988)
The Alibaba share price is down 17% year-to-date, as the Chinese economy continued to show signs of sluggishness.
However, new interest rate cuts and a one trillion yuan stimulus package from the Chinese government boosted the e-commerce stock by as much as 11% on the week ending 26 August 2022.
Earlier, Alibaba’s revenue for its June-ending quarter came in higher than expected at 205.6 billion yuan ($30.7 billion).
Meanwhile, non-GAAP diluted earnings per American depository share (ADS) decreased 29% year-on-year (YoY) to 11.73 yuan ($1.75). Despite the decline, this was higher than Refinitiv analysts’ expectations of 10.39 yuan ($1.51) per ADS.
In July 2022, Alibaba shares jumped up as much as 6.5% after it announced it would apply for a primary listing on the Main Board of Hong Kong Stock Exchange, where it has held a secondary listing since November 2019.
Tencent Holdings Ltd (HKG: 0700)
Like Alibaba, the technology and entertainment group’s shares have also dropped tremendously this year.
But despite being down nearly 30% year-to-date, Tencent remains the largest Hong Kong-listed Chinese firm by market capitalisation at over 3 trillion yuan.
Results-wise, the company saw its revenue slip 3% YoY to 134 billion yuan ($19.7 billion) in the second quarter (Q2) of 2022. Analysts surveyed by FactSet had expected Tencent to report a revenue of $19.9 billion.
This was Tencent's first revenue drop from on a YoY basis since going public in 2004.
Adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) fell 11% YoY 44.7 billion yuan. Free cash flow for Q2 came in at 22.5 billion yuan, up 30% YoY.
Industrial and Commercial Bank of China Limited (HKG: 1398)
Industrial and Commercial Bank of China Limited (ICBC), China’s most valuable bank, has a market cap of HK$1.8 trillion (1.59 trillion yuan). This makes it the world’s third largest bank, behind JPMorgan Chase & Co and Bank of America (BoA).
The state-owned bank’s Hong Kong listing is currently trading around a two-year low, and was down to as low as HK$3.95 as of 24 August 2022. New economic stimulus introduced by the State Council, China’s cabinet, helped to lift the stock back above HK$4 subsequently.
Nevertheless, the stock remains down by over 9% year-to-date, prompting some analysts to call it ‘undervalued’. This also presents retail investors a potentially attractive entry point.
Analysts polled by Bloomberg had an average target price of HK$8.90 on ICBC shares as of 13 August 2022. This equates to an upside potential of 122% from ICBC’s last traded price of HK$4.01.
JD.com (HKG: 9618)
The second largest Chinese e-commerce group’s shares are up by nearly 10% in the last one month, thanks to better-than-expected Q2 results and the government’s latest round of fiscal stimulus.
The online retailer recorded a revenue of 267.6 billion yuan ($40.0 billion) in Q2 of 2022, an increase of 5.4% from a year ago. This surpassed analysts’ estimates of 262.31 billion yuan, based on Refinitiv's Institutional Brokers' Estimate System data.
Net product revenues increased by 2.9% during the quarter, while net service revenues increased by 21.9% from a year ago.
Xu added that the company will continue to focus on generating strong shareholder returns while maintaining its commitment to investing for the long term.
BYD Co Ltd (HKG: 1211)
The Warren Buffet-backed automaker, founded in 1995, has been pivoting its business model away from traditional car manufacturing toward high-tech solutions dedicated to sustainable development in the areas of electronics, new energy, and rail transit.
BYD, short for Build Your Dreams, has been the top seller of new energy passenger vehicles for nine consecutive years in China.
The company also sold 730,093 passenger vehicles in 2021 (a YoY increase of 232%), including 593,745 new energy passenger vehicles. In the first half of 2022, BYD sold 638,157 new energy passenger vehicles, up 324.8% YoY.
BYD was also recently named among the Fortune Global 500 companies for 2022.
Baidu Inc (HKG: 9888)
The search engine company’s revenue for Q2 of 2022 came in at 29.65 billion yuan ($4.43 billion), beating Refinitiv analysts’ average estimate of 29.3 billion yuan ($4.25 billion).
This came on the back of Baidu's non-online marketing revenue, which burgeoned 22% YoY to 6.1 billion yuan ($906 million), driven by the cloud and other AI-powered businesses.
Meanwhile, online marketing revenue fell 10% YoY to 17.1 billion yuan ($2.55 billion), due to the resurgence of Covid-19 in certain cities in China.
The counter opened over 2% higher following the results release. Shares are up over 9% in the last one month.
Agricultural Bank of China (HKG: 1288)
One of the ‘Big Four’ banks in China, Agricultural Bank of China (AgBank) shares plummeted in early July, amid China’s ongoing property mortgage boycott crisis. Of the 16 commercial banks that initially published notices, AgBank had the highest amount of exposure of over 600 million yuan ($87 million).
However, the bank revealed in its latest financial report that the real amount of overdue loans was nearly double the initial projection at 1.23 billion yuan ($178 million). As a result, AgBank’s non-performing loan ratio for real estate grew to 3.97% from 3.39% at the end of 2021.
Overall, AgBank’s first-half income rose 5.4% to 128.9 billion yuan ($26 billion) from a year earlier.
The stock is currently trading near a two-year low price of HK$2.56 a share and a historical low price-to-book ratio of 0.4 times.
Nio (HKG: 9866)
Shares of the world’s second largest electric vehicle maker, which are listed on the US, Hong Kong and Singapore stock exchanges, have been on a slight uptrend of late. However, the stock is down by over 4% on a year-to-date basis.
The Shanghai-based company recently updated that a previously announced independent internal review of a report issued by the short-seller firm Grizzly Research LLC was ‘substantially complete’. The report claimed that Nio had been exaggerating its revenues and profits.
‘Based on findings of the internal review, the independent committee has concluded that these allegations were not substantiated,’ Nio said.
Nio is scheduled to release its Q2 2022 unaudited financial results on 7 September 2022, with the company expecting total revenue to increase between 10.6% and 19.4%, and vehicle deliveries to increase between 5% and 14.2%.
NetEase Inc (HKG: 9999)
The internet group announced that it will be paying a quarterly dividend of $0.36 on 16 September 2022, up from $0.24 in the same period a year ago.
This brings NetEase's dividend yield to 1.2%, putting it ahead of the industry. The larger dividend yield is supported by stronger income and cash flow in Q2 of 2022.
Net income from continuing operations attributable to the company's shareholders increased 32% YoY to 4.7 billion yuan ($696.7 million) during the quarter, while cash flow generated from operating activities burgeoned 40% YoY to 6.6 billion yuan ($990 million).
The stock is down by nearly 13% in 2022. Analysts currently have an average rating of ‘buy’ and target price of HK$188.51, which equates to a 36% upside potential from NetEase’s last traded price of HK$139.
Pinduoduo Inc. (NASDAQ: PDD)
Pinduoduo shares closed nearly 15% higher, after it reported its Q2 2022 financial results.
China’s largest e-commerce platform specialising in agriculture products, recorded total revenues of 31.44 billion yuan ($4.7 billion), an increase of 36% from 23.046 billion yuan in the same quarter of 2021. This surpassed Refinitiv analyst estimates of 23.7 billion yuan.
The increase was primarily due to an increase in revenues from online marketing services (up 39%) and transaction services (up 107%), offset by the decrease of revenues from merchandise sales (down 97%).
‘Looking ahead, we stay dedicated to investing in areas such as agriculture and R&D to better serve our consumers,’ said Ms. Jun Liu, vice president of Finance of Pinduoduo.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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