In this article, we discuss the 10 Chinese stocks to avoid amid economic slowdown. If you want to read about some Chinese stocks, go directly to 5 Chinese Stocks to Avoid Amid Economic Slowdown.
Investors around the world have been impacted from the prolonged COVID-19 policies of the Chinese government that have slowed down growth in the Asian country and stoked recession fears. The Asian Development Bank (ADB) has been forced to cut down growth forecasts for the developing countries in the region that are heavily linked to the Chinese economy. According to a recently released report of the body, the developing economies in Asia are still set to grow faster than China for the first time in three decades.
Some of the United States-based stocks that could be affected by the slowdown in China include Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS). Per the ADB, developing Asia — excluding China — is set to grow by 5.3% in 2022, compared to growth forecasts of 3.3% in the same year for China. The Asian bank has said that the last time this happened was in 1990 when developing economies in the region grew by close to 7% against nearly 4% growth figures for Beijing.
The ADB has identified three key reasons why the economy in China is slowing down. These include sporadic lockdowns from the zero-COVID policy, problems in the property sector, and slowing economic activity in light of weaker external demand. Per the bank, investments in the manufacturing sector of the country are also slowing. The bank claims that the Chinese economy will also be impacted by the rising inflation as banks in the region raise interest rates to tackle the menace that is spreading globally as well.
Our Methodology
The companies that have deep links with the Chinese economy were selected for the list. The analyst ratings of these firms and the latest updates related to them are also discussed to provide some additional context. Data from around 900 elite hedge funds tracked by Insider Monkey in the second quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Photo by Markus Winkler on Unsplash
Chinese Stocks to Avoid Amid Economic Slowdown
10. ZTO Express (Cayman) Inc. (NYSE:ZTO)
Number of Hedge Fund Holders: 17
ZTO Express (Cayman) Inc. (NYSE:ZTO) provides express delivery and other value-added logistics services in China. On August 17, the company posted earnings for the second quarter of 2022, reporting earnings per share of $0.33, beating market estimates by $0.06. The revenue over the period was $1.29 billion, up over 14% compared to the revenue over the same period last year and beating analyst estimates by $30 million. The firm has also recently priced a $870 million debt offering. The firm features on the list of Chinese stocks to avoid amid economic slowdown since it is vulnerable to the impact of decreasing factory orders in China.
On August 25, Morgan Stanley analyst Qianlei Fan maintained an Overweight rating on ZTO Express (Cayman) Inc. (NYSE:ZTO) stock with a price target of $38.80, predicting that the share price of the firm will rise in absolute terms over the next 60 days.
Among the hedge funds being tracked by Insider Monkey, Australia-based investment firm Platinum Asset Management is a leading shareholder in ZTO Express (Cayman) Inc. (NYSE:ZTO), with 15 million shares worth more than $420 million.
Just like Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS), ZTO Express (Cayman) Inc. (NYSE:ZTO) is one of the China-related stocks to avoid amid economic slowdown.
9. New Oriental Education and Technology Group Inc. (NYSE:EDU)
Number of Hedge Fund Holders: 22
New Oriental Education and Technology Group Inc. (NYSE:EDU) provides private educational services. On July 27, the company posted earnings for the fourth fiscal quarter, reporting losses per share of $0.94. The revenue over the period was $524 million, down over 56% compared to the revenue over the same period last year. The firm has also said that net revenues for 2023 would be in the range of $641.3 million to $680.6 million, representing year-over-year decline in the range of 51% to 48%. The company is present on the list of Chinese stocks to avoid amid economic slowdown since Chinese spending patterns are changing.
On July 29, Bank of America analyst Lucy Yu upgraded New Oriental Education & Technology Group Inc. (NYSE:EDU) stock to Buy from Neutral and raised the price target to $36.60 from $18.80, noting the share price of the firm was on par with the new cash.
At the end of the second quarter of 2022, 22 hedge funds in the database of Insider Monkey held stakes worth $721 million in New Oriental Education and Technology Group Inc. (NYSE:EDU), down from 23 in the preceding quarter worth $260 million.
In its Q3 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and New Oriental Education and Technology Group Inc. (NYSE:EDU) was one of them. Here is what the fund said:
“The quarter’s leading detractors were Chinese companies that were impacted by the CCP’s regulatory crackdown and liquidity concerns at property developer Evergrande. New Oriental Education and Technology Group Inc. (NYSE:EDU)—the largest provider of private educational services in China—moved sharply lower in July after policymakers implemented new rules which effectively turned Chinese tutoring companies into non-profits. Looking at New Oriental Education, we closed our position as soon as government policy became clear and used the proceeds to allocate to existing holdings.”
8. XPeng Inc. (NYSE:XPEV)
Number of Hedge Fund Holders: 24
XPeng Inc. (NYSE:XPEV) designs, develops, manufactures, and markets smart electric vehicles in China. On September 19, the company announced that it had begun rolling out the City Navigation Guided Pilot program. As the rollout begins, the firm has become the first Chinese auto company to introduce high-level Advanced Driver Assistance System (ADAS) functions for complex urban driving scenarios. The program features a multi-modality sensor fusion framework with cameras, LiDAR units, and millimeter-wave radars. The company is on the list of Chinese stocks to avoid amid an economic slowdown as EV sales are slowing down in the country.
On August 24, investment advisory Citi maintained a Buy rating on XPeng Inc. (NYSE:XPEV) stock and lowered the price target to $27.87 from $51.59. Analyst Jeff Chung issued the ratings update.
At the end of the second quarter of 2022, 24 hedge funds in the database of Insider Monkey held stakes worth $618.7 million in XPeng Inc. (NYSE:XPEV), compared to 26 in the preceding quarter worth $783.9 million.
7. Yum China Holdings, Inc. (NYSE:YUMC)
Number of Hedge Fund Holders: 25
Yum China Holdings, Inc. (NYSE:YUMC) owns, operates, and franchises restaurants in China. On July 28, the company posted earnings for the second quarter of 2022, reporting earnings per share of $0.20. The revenue over the period was $2.1 billion, down over 13% compared to the revenue over the same period last year and missing analyst estimates by $30 million. The firm also said that same-store sales decreased 16% year-over-year, with decreases of 16% at KFC and 15% at Pizza Hut. The company is on the list of Chinese stocks to avoid amid economic slowdown as restaurant sales fall during downturns.
On July 26, investment advisory CMB International upgraded Yum China Holdings, Inc. (NYSE:YUMC) stock to Buy from Hold with a HK$426.17 price target, up from HK$287.57. Analyst Walter Woo issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, London-based firm GuardCap Asset Management is a leading shareholder in Yum China Holdings, Inc. (NYSE:YUMC), with 9 million shares worth more than $438 million.
In its Q2 2022 investor letter, Cooper Investors, an asset management firm, highlighted a few stocks and Yum China Holdings, Inc. (NYSE:YUMC) was one of them. Here is what the fund said:
“Yum China Holdings, Inc. (NYSE:YUMC) – With the world emerging after two years of COVID, the extreme Shanghai lockdowns caught the company and frankly us a little by surprise. While the proposition for domestic KFC roll-out remains intact Yum China has not behaved like a Stalwart this year.”
6. NIO Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 25
NIO Inc. (NYSE:NIO) designs, develops, manufactures, and sells smart electric vehicles in China. On September 8, the company said that it was confident that export restrictions on chipmaker NVIDIA would not affect the production capabilities of the firm. NIO stock had dropped in the past week on the back of reports that the US had introduced new legislation that would require the chipmakers in the country to get a license for future exports to China for certain products. The company is on the list of Chinese stocks to avoid amid economic slowdown as EV sales slow down due to rising inflation.
On September 12, Deutsche Bank analyst Edison Yu maintained a Buy rating on NIO Inc. (NYSE:NIO) stock with a price target of $39, noting the firm was on a path to emerge as a leader among electric vehicle upstarts.
At the end of the second quarter of 2022, 25 hedge funds in the database of Insider Monkey held stakes worth $873.9 billion in NIO Inc. (NYSE:NIO), compared to 26 in the previous quarter worth $716 million.
Alongside Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS), NIO Inc. (NYSE:NIO) is one of the China-related stocks that hedge funds are avoiding amid economic slowdown.
In its Q1 2022 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and NIO Inc. (NYSE:NIO) was one of them. Here is what the fund said:
“At the beginning of April the CSRC (China Securities Regulatory Commission) announced possible changes in its regulation that would allow this inspection by foreign auditors, provided that the companies previously communicate to this body the state secrets that would be exposed, as well as the sensitive information that they might have to hand over, and the subsequent audit is carried out in a framework of collaboration with the CSRC. In short, a move in the direction desired by the SEC, although still far from the optimal result, that is, unrestricted access to information. While these negotiations between the two regulatory bodies are progressing, Chinese companies have to decide how best to preserve their interests. Other entities, such as the electric vehicle manufacturer NIO Inc. (NYSE:NIO), have just started trading on this stock market.”
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Disclosure. None. 10 Chinese Stocks to Avoid Amid Economic Slowdown is originally published on Insider Monkey.