Will these 5 popular Chinese stocks survive the regulatory storm?

Summary

  • The crackdown on Chinese companies may affect their business negatively in future.
  • Chinese stocks witnessed a massive sell-off this week.
  • Investors are wary of the situation, and the nervousness may settle only with time.

Chinese authorities have recently stepped up regulatory pressure on its companies engaged in technology, education, to real estate sectors, mainly those listed in the US or planning for such a listing. Conversely, in an apparent tit-for-tat move, the US authorities are mulling measures that will require Chinese companies to clarify that they do not work for their government.

The US-China relation has nosedived over a host of issues, from trade, cybersecurity, human rights to crackdown on pro-democracy activists in Hong Kong and Taiwan’s sovereignty in the past three years. Amid these tensions, Chinese companies have come under increased scrutiny. 

The stock prices of the Chinese companies have been falling sharply over the past week despite their robust business growth in the past one-and-a-half years. However, here are five Chinese stocks that may sail through the turmoil.

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Source: Pixabay

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NIO Inc. (NYSE: NIO), a premium electric vehicle designer and manufacturers competing in the segment where giants like TESLA are throning.

The company has a market capitalization of US$ 72.5 billion. It will declare its second-quarter results on August 11.

In the first quarter ended March 31, 2021, the revenue for the company was US$ 1,218.3 million, a 484.1% increase YOY. Its net loss attributable to ordinary shareholders was US$ 744.1 million, 183% more than the previous year quarter. Net loss per share diluted was US$ 0.48. 

The stock closed at US$ 42.62 on July 29, 2021.

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Alibaba Group Holding Limited (NYSE: BABA) is the largest online and mobile company in China. Its market capitalization is US$ 528 billion, and its P/E ratio is 23.94.

In the last six years, the company has shown significant growth halted only in late 2020. BABA will release second-quarter earnings on August 3.

In the March quarter, its revenue was US$ 28,602 million, showing an increase of 64% year-over-year. Its net loss attributable to ordinary shareholders was US$ 836 million, majorly due to the anti-monopoly fine levied by China’s State Administration under anti-monopoly law. Its diluted loss per share was US$ 0.30. 

March 31 was its FY 2021 end, too, and it reported 891 million consumers across China and around 240 million consumers outside China.

Its stock closed at US$ 197.54 on July 29.

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Source: Pixabay

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LexinFintech Holdings Ltd. (NASDAQ: LX) is an online consumption and consumer finance platform in China and has a market capitalization of US$ 1,42 billion with a P/E ratio of 5.31.

Its March quarter revenue was US$ 449.29 million, and net income was US$ 108.6 million or US$ 0.53 net income per ADS attributable to the ordinary shareholder.

On July 22, The Asian Banker's Excellence in Retail Financial Services Awards 2021 program awarded LX the Best Digital Business Model Initiative. It also won Outstanding Financial Innovators-Fintechs in the Asia Pacific region.

The stock close at US$ 8.28 on July 29, 2021.

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TAL Education Group (NYSE: TAL) is K-12 after school tutoring provider in China. It has US$ 3.9 billion in market capitalization. The company will declare its first quarter of FY 2022 results on August 5, 2021.

This educator sector company's net revenue was 58.9%, up YoY to US$1,362.7 million in the February end fourth quarter, and for the whole year, the net revenue was up 37.3%. Its non-GAAP loss from the operation for the February quarter was US$ 216.9 million and for FY 2021 was US$ 233.3 million. 

Net loss diluted per ADS was US$ 0.27, and non-GAAP net loss diluted per ADS was US$ 0.14.

On July 24, China's state-media reported on the government’s plan to reduce homework for students. It reported that the authorities would clampdown on for-profit education companies if the rules were violated. TAL must now find ways to remain profitable in the business. 

The stock closed at US$ 5.87 on July 29, 2021.

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NetEase, Inc. (NASDAQ: NTES) provides online services such as online games, media, advertising, cloud music, live streaming, email, e-commerce, and online education.

Its market capitalization is US$ 68.58 billion, and the P/E ratio is 36.01. NTES is the only company here to provide a dividend. Its dividend yield is 1.19%, and its annualized dividend is US$ 1.19.

Its March quarter revenue was US$ 3.1 billion, a 20.2% increase year-over-year. Gross profit was US$1.7 billion with a 17.9% YOY increase. The net income was US$ 677.5 million, and the non-GAAP net income was US$ 775.5 million. The net income per share diluted was US$ 0.20 and US$ 1.01 per ADS. 

The stock closed at US$ US$ 100.9 on July 29, 2021.

Please note: The above constitutes a preliminary view and any interest in stocks/cryptocurrencies should be evaluated further from an investment point of view.

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