Hundreds of Chinese companies are listed on U.S. markets. But which are the best Chinese stocks to buy or watch right now? Weibo (WB), Sohu (SOHU), Nio (Nio), BYD Co. (BYDDF) and Li Auto (LI).
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China 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.
But with China’s crackdowns on Didi Global (DIDI), for-profit education firms and other sectors, U.S.-listed Chinese stocks have been hammered in recent weeks, adding to a weak 2021. While Beijing is signaling it would like stocks to stabilize, it’s also continuing to levy restrictions and increase oversight on the private sector. Suffice to say, the risks are very high.
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)
- Gaotu Techedu (GOTU), formerly known as GSX Techedu.
Don’t forget stocks in other fields, such as riding-hailing firm Didi Global (DIDI), beauty products maker Yatsen (YSG) or data-center operator GDS Holdings (GDS).
Beijing Crackdown On Chinese Stocks
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.
That risk has been very apparently over the last several months.
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. Alibaba affiliate Ant Group limiting the scope of some of its businesses to comply with regulators’ demands.
Further antitrust probes and fines are likely for other internet giants.
China’s cybersecurity regulator earlier this month ordered app stores to remove Didi Chuxing, just days after Didi Global (DIDI) held one of the biggest U.S. IPOs in years. The cybersecurity regulator said Didi violated restrictions on the collection and usage of personal information, but didn’t offer any specifics. That came just days after announcing a probe and ordering Didi to suspend new user sign ups.
More broadly, China will impose cybersecurity reviews on internet and data-centric companies listing overseas. Hong Kong listings appear to be exempt, suggesting far fewer Chinese companies listing in the U.S. going forward. Many big U.S.-listed Chinese companies already have secondary listings in Hong Kong.
For-profit school operators, including New Oriental Education (EDU), TAL Education (TAL) and Gaotu Education (GOTU), crashed on July 23 as Beijing mulled whether to make after-schooling tutoring firms nonprofit. These stocks had already fallen sharply in 2021 as regulators and leaders signaled new restrictions.
Beijing confirmed for-profit restrictions over the weekend, triggering continued huge losses in Chinese school stocks and big losses among U.S.-listed China stocks. China also is setting new rules on app-based delivery firms and has signaled it may target the property sector. Finally, Beijing has hinted at even-tougher rules for Hong Kong and Macau.
This week, state media has suggested that the government would like to see stocks stabilize. The securities regulator said it would still support Chinese firms listing in the U.S. That news gave a boost to Chinese stocks in New York, Hong Kong and Shanghai, but after massive declines.
However, the Ministry of Industry Information Technology on July 30 told 25 of its largest internet and tech companies, including Alibaba and Tencent, to conduct internal reviews and fix problems from consumer protections and data security.
On Aug. 3. Chinese state media criticized online gaming as “spiritual opium” for adolescents. China has cracked down on online gaming firms previously. Tencent (TCEHY), NetEase (NTES) and Bilibili (BILI) are all in focus.
Chinese Stock Risks, Continued
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.
The SEC has temporarily stopped halted of U.S. IPOs and other sales of securities by Chinese companies as it crafts new investor disclosure related to the risks of regulatory crackdowns, Reuters reported Friday, citing sources.
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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 remains under pressure.
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.
Chinese stocks are out of favor. Whether it’s a general malaise for EV names such as Nio and Xpeng, or a regulatory crackdown for Alibaba, Didi or New Oriental Education, U.S.-listed Chinese stocks have been notable losers in 2021.
After a brief attempt in May and June, China stocks are under heavy pressure once again.
Chinese stocks rebounded on July 28 after state media blamed the recent sell-off on “venting of emotion.” That suggests leaders would like stock prices to stabilize.
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Best Chinese Stocks To Buy Or Watch
| Company | Ticker | Industry Group | Composite Rating |
|---|---|---|---|
| Li Auto | LI | Auto Manufacturers | 66 |
| Nio | NIO | Auto Manufacturers | 56 |
| BYD | BYDDF | Auto Manufacturers | n.a. |
| Sohu | SOHU | Computer Software-Gaming | 43 |
| WB | Internet-Content | 95 |
So let’s analyze these five top China stocks: Li Auto stock, Nio stock, BYD stock, Sohu stock and Weibo stock.
Li Auto Stock
Li Auto is one of several Chinese electric vehicle makers that trade in the U.S., competing with each other and Tesla (TSLA).
While still losing money, Li Auto has seen huge sales growth from its one current model, the Li One SUV. Li One is actually a hybrid, with a small gasoline engine to extend its range.
Li Auto on Aug. 1 reported July sales of 8,529, up 251% vs. a year earlier and up 11.4% vs. June. Li Auto has delivered 38,473 Li One SUVs in 2021.
After a huge run from its July 2020 IPO to a record 47.70 on Nov. 24, 2020, Li Auto stock plunged to 15.98 on May. Shares more than doubled to 36.66 on July 1, but have since pulled back, like other EV stocks and highly valued growth names generally.
On July 21, Li Auto stock broke the downtrend of a handle in a very deep consolidation, offering an extremely aggressive entry point. But shares quickly wiped out those gains amid weakness in Chinese stocks, soon tumbling below their 50-day and 200-day lines.
Li Auto stock spiked 16% on July 28, as U.S.-listed Chinese companies bounced. Shares reclaimed their 50-day and 200-day lines. Li Auto leapt again on July 30.
Shares popped early on Aug. 2, but only closed slightly higher.
After the close Li Auto stock fell modestly after the automaker filed to sell an undisclosed amount of shares.
Li’s “handle” is now too low in the extremely deep base to be legitimate in any sense. While shares arguably are once again breaking a downtrend in the “handle,” they are already about 15% above the 50-day line.
Ideally, Li’s “handle” would turn into a short base within the huge consolidation. But that would take a few weeks.
Li Auto is moving toward having a dual listing in Hong Kong, joining Nio and Xpeng. It also plans to introduce a new, larger hybrid SUV in 2022.
Li stock has a 63 IBD Composite Rating out of 99.
Nio Stock
While not as large as the diversified, profitable BYD, Nio is the most established of the Chinese EV startups. Nio has three electric vehicles, the ES8, the ES6 and the crossover EC6. It plans to release a high-end EV sedan, the ET7, in 2022.
The company is not yet profitable, but revenue growth is very strong. Revenue soared 529% in Q1 2021 vs. a year earlier, when China was at the height of its coronavirus crisis. However, Nio deliveries stalled in Q2 vs. Q1 amid chip shortages.
Nio has begun shipping its ES8 SUV to Norway, beginning a European expansion.
Nio stock peaked at 66.99 on Jan. 11, tumbling to 30.73 on May 13. Shares ran up to 55.13 on July 13 but have since fallen back. Nio tumbled below its 50-day and 200-day lines in late July, but rebounded back above those levels on July 30.
Nio rose modestly on Aug. 2.
Nio’s extremely deep base is not healthy. Ideally, Nio stock would form a short base within that consolidation.
Nio deliveries came in 7,931, up 124.5% vs. a year earlier. But that’s down 1.9% from 8,083 in June. July’s EV total includes 1,702 ES8 SUVs, 3,669 ES6 SUVs and 2,560 EC6 crossovers.
The EV startup has had significant chip shortages, hampering production in Q2.
BYD Stock
BYD Co. is the biggest pure-play Chinese EV maker, making electric cars and buses, as well as many hybrids. It’s also a major EV battery maker. Warren Buffett’s Berkshire Hathaway (BRKB) is a longtime investor.
BYD sold 54,841 all-electric cars in Q2, not far below Tesla’s 61,745. The China EV maker sold 99,828 new energy vehicles, which also include hybrids and commercial vehicles.
Most of all, BYD is profitable, in sharp contrast to Li Auto, Nio and Xpeng Motors.
BYD stock corrected nearly 52% from its January peak of 35.94 to its May 12 low of 17.41, though that’s a smaller decline than Li Auto stock. Shares ran up to 31.30 in late June, but fell back amid the sell-off in Chinese stocks.
BYD undercut its 50-day on July 27, but held support at its 200-day and reclaimed its 50-day the following session. It then kept climbing. Despite a big sell-off to start, BYDDF stock rose 7% last week.
On Aug. 2, BYD gapped above a handle buy point of 31.40, and closing just out of range. BYD stock arguably broke a short trend line within that handle on Thursday. offering a very aggressive entry.
BYD stock is the only one of these quintet that can be seen as close to a legitimate breakout. The handle is valid, unlike with Nio or Li Auto. Still a short base within that larger consolidation would be preferable to a handle breakout from the overall pattern. A short base could form in another week, assuming BYDDF stock stays in its range.
The automakers introduced a cheaper, standard-range Han EV on July 31 after Tesla cut the Model 3 price in China last week.
BYD will likely release July sales in the next week.
BYD is listed in Hong Kong and trades over the counter in the U.S. So the BYDDF stock chart is prone to lots of little gap ups and downs.
Sohu Stock
The Chinese mobile gaming firm was one of the early Chinese internet firms on U.S. markets, going public in July 2000. Sohu stock peaked in 2011 and steady fell until March 2020, when it rallied significantly for several months. Shares have been consolidating for about a year. On July 13, Sohu stock spiked higher, clearing an early entry or base-within-a-base and nearly hitting a 52-week high.
Shares soon pulled back, tumbling last week with other U.S.-listed Chinese stocks, and is down solidly this week.
Sohu stock rose solidly Wednesday, then edged lower on Thursday and Friday.
Shares rose modestly on Monday.
Investors could use 25.09 as a buy point, just above the July 15 high, though it’s hard to call this a handle anymore.
After losing money for several years, Sohu is profitable once again, with revenue growth picking up.
Weibo Stock
Weibo stock is a popular social media firm, often compared to Twitter (TWTR).
After a tough 2020 due to the pandemic, growth is roaring back. Weibo earnings rose 90% in the latest quarter with revenue up 42%, both accelerating for the past two quarters.
WB stock is in a cup base that’s just 31% deep. On July 7, shares briefly cleared the 63.65 buy point but closed below that key level. Weibo has gapped up on reports that it’s mulling a go-private move. The company has denied the go-private report, however.
WB stock tumbled through its 50-day line on Tuesday. Shares bounced Wednesday, back above their 50-day. Weibo rose slightly the rest of the week.
Shares rose modestly on Aug. 2, back above its 21-day line.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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