Zacks Investment Research | Oct 16, 2019 09:35PM ET
U.S.-China trade tensions have stirred up again despite the partial deal agreed upon last Friday. Optimism surrounding the trade truce faded, primarily due to unrest in Hong Kong.
China recently criticized the United States for passing a bill at the House of Representatives, which would support protestors in Hong Kong. The House legislation is expected to review whether Hong Kong should be separate from China, and if it deserves a special trading status under U.S. rules and regulations.
Lest we forget, the Hong Kong international airport, known to be one of the busiest cargo airports, was shut down some time back due to heavy protests. In fact, almost 5,000 protestors had flooded the airport, leading to cancellation of many flights. Protestors have been opposing a proposal that would allow extradition to mainland China, something that would threaten their judicial protection.
China, in the meantime, has condemned the bill as “arrogant and dangerous,” and accused U.S. lawmakers of a political plot to spoil China. Beijing has now warned that it may resort to retaliatory measures if the legislation gets implemented.
President Trump, in the meanwhile, has said that China can only buy $40 billion to $50 billion of U.S. agriculture products — something that had been agreed on in the phase one trade deal – provided there is a rollback of $50 billion in tariffs.
Such developments no doubt have hampered the progress made in the protracted trade issue, impacting the global economy and squeezing corporate profits. But, investors shouldn’t freak out! Once the miserable trade environment clears, the negativity shrouding China will take a backseat. But, if you still don’t trust what’s happening on the trade front, there are various reasons to place your bets on China stocks.
Let’s admit, China is the second-largest economy in the world, as is its stock market when measured by market-cap. Needless to say, it has huge state-run energy players like Sinopec. All these show that despite odds, the China market is growing and if you are a long-term investor, Chinese stocks must be part of your portfolio.
Skeptics may argue that China’s GDP growth has touched the lowest level this year in almost three decades. Then again, it is still expanding at an astounding 6% to 6.5%, more than other major emerging economies like India and also developed nations like the United States and Japan.
There is also a direct link between London and Shanghai stock exchange, created to help both Western and Chinese investors trade on the counterpart’s stock market. This means that structural hazards related to investments in China stocks are falling apart.
Thus, the next obvious question is which are the best China stocks to keep an eye on? Here’re three —
JD.com
JD.com, Inc. (NASDAQ:JD) is an e-commerce company in the People’s Republic of China. The stock has done pretty well through the year. Its shares are up 49.2% on a year-to-date basis, more than the Internet - Services industry’s rise of 4.3%.
Even though it has hit a rough patch, it does provide an excellent entry point for investors. It has started to venture into the AI space. It is also investing significantly in Apollo, its open-source autonomous vehicle technology platform, which should fetch the company a healthy return on investment.
Needless to say, its online video platform iQIYI has a commanding market share in China. During the second quarter, iQIYI had more than 100 million subscribers, showing a 50% year-over-year increase. And since iQIYI constitutes the bulk of Baidu’s revenues, such developments are surely encouraging. In fact, the company’s expected earnings growth rate for the next year is 35.2%, higher than the industry’s projected rally of 24.4%.
Baidu currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 16.6% over the past 60 days. You can see Zacks Investment Research
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