In this article, we will discuss the 10 Worst Chinese Stocks to Buy Right Now According to Short Sellers.
Between January 2024 to late August 2024, the Chinese equity markets have witnessed a significant rebound. On a YTD basis, the Hang Seng Index saw an increase of over 3%. Both onshore and offshore Chinese equities were able to generate positive returns, with materials and industrial sectors in the positive territory. This growth was seen mainly due to resilience in the broader Chinese economy, with the country’s GDP increasing by 5.3% YoY in 1Q, exceeding market expectations.
However, China’s economy grew much slower than anticipated in 2Q as a protracted property downturn and job insecurity impacted the broader economy. Market experts expect that Beijing might have to unleash even more stimulus measures. China’s economy saw an increase of 4.7% in April-June, the slowest growth since 1Q 2023 and missing a 5.1% estimate by the broader market.
Outlook for Chinese Economy
Earlier in the year, China announced its ambitious goal of reaching 5% economic growth in 2024. The strong growth of new industries together with fresh drivers should continue to help the broader Chinese economy. Experts believe that new avenues of growth are needed for China to see steady growth. This includes expansion in new and transforming industries such as AI, digital financial services, and green technologies such as EVs.
China’s clean energy sector already made up for ~40% of the country’s economic expansion in 2023, reported the World Economic Forum. Meanwhile, spending by private-sector on research and development doubled over the past five years. Experts opine that high-quality growth is required to be rooted in advanced technologies.
Industries related to high-quality growth include generative AI systems, semiconductors, and renewable energies. As per experts, tapping into these sectors, with the required investments, should add to the growth of the broader Chinese economy and equities. Also, maintaining efficient supply chains and gaining access to global markets should help in achieving high-quality growth.
Where Are Chinese Equities Headed for Remainder of 2024?
The valuation of Chinese equities is at low levels as compared to other major markets globally. The valuation of the Hong Kong stock market remains around low levels that were witnessed during previous market turmoil, like the 2008 global financial crisis, the 2011 European debt crisis, and other Black-Swan events. The continuous improvement of economic fundamentals and more supportive measures to address challenges are expected to translate the current low valuations into a sustained rally.
The country’s economic growth over the upcoming 2 years should surpass the global average, including both developed and developing economies. Domestically, the potential ramp-up in government bond issuance is likely to support expanded infrastructure investment in 2H 2024. As per China Asset Management (Hong Kong) Limited’s mid-year outlook, ~70% of the 2024 bond issuance quota is unused. This is even after a strong jump in bond issuance seen in May.
The country’s exports are likely to remain strong in 2H 2024. All these factors should bring stability to the overall economy and result in the recovery of corporate earnings, driving equity markets.
With improvement expected in the Chinese economy, underpinned by supportive policies, the overall risk appetite should increase gradually in 2H 2024. This should result in increased inflows in the equities in 2H 2024.
Therefore, investors might rebalance their portfolios towards both value and growth sectors. China Asset Management (Hong Kong) Limited believes that investors should use state-owned enterprises (SOEs) providing high dividends to build a robust investment foundation, mainly for those having clear competitive edges and operating advantages.
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Our methodology
To list the 10 Worst Chinese Stocks to Buy Right Now According to Short Sellers, we used a Finviz screener to filter out the Chinese stocks. Next, we narrowed our list by selecting the stocks having high short interest. Finally, these stocks were ranked in ascending order of their short interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst Chinese Stocks to Buy Right Now According to Short Sellers
10) XPeng Inc. (NYSE:XPEV)
Short % of Float (8/30/2024): 5.54%
Number of Hedge Fund Holders: 17
XPeng Inc. (NYSE:XPEV) is a smart electric vehicle company, which is engaged in designing, developing, manufacturing, and marketing smart electric vehicles in China.
Short sellers believe that XPeng Inc. (NYSE:XPEV) continues to struggle with tepid domestic sales and product planning disputes. Also, a prolonged price war in the Chinese market might continue to weigh over its revenues and earnings. Apart from this, short sellers believe that the company will continue to face industry-wide challenges.
For example, the US has imposed tariffs on Chinese EV imports, which might top 100%, with the world’s 2 largest economies fighting over an industry that has grown rapidly mainly due to Beijing’s subsidies. The restriction is expected to limit the company’s volume growth moving forward. Also, there are worries relating to the sales from the new MONA model impacting the gross margin negatively.
However, market experts believe that XPeng Inc. (NYSE:XPEV)’s strategic partnership with Volkswagen is expected to help in its supply-chain reforms and should help in margin expansion. As a result, there are expectations of stable gross margins in 2H 2024, courtesy of higher exports and volume sales. Moreover, the company’s Pure Vision technology should be able to enhance ADAS capability and reduce costs.
XPeng Inc. (NYSE:XPEV) is focusing on a unique approach to Robotaxi development, with increased emphasis on full-domain human-like driving experience. Even though it is not directly involved in Robotaxi operations, it has plans to establish high-quality vehicles for partnerships. Therefore, its focus on technological advancements, strategic alliances, and international expansion should continue to act as critical tailwinds for 2024 and 2025.
Daiwa Capital Markets upgraded the shares of XPeng Inc. (NYSE:XPEV) from a “Neutral” rating to a “Buy” rating. The company gave a price target of $11.00 on 23rd May. Insider Monkey’s 2Q 2024 data revealed that the company was in the portfolios of 17 hedge funds.
9) Gaotu Techedu Inc. (NYSE:GOTU)
Short % of Float (8/30/2024): 7.32%
Number of Hedge Fund Holders: 18
Gaotu Techedu Inc. (NYSE:GOTU) is a technology-driven education company, having core expertise in online K -12 courses.
Short sellers believe that the company continues to face challenges when it comes to balancing growth with financial stability. Moreover, Gaotu Techedu Inc. (NYSE:GOTU) is expecting a significant net loss for the year of ~RMB1 billion. The company continues to face difficulties in controlling its aggressive expansion strategy along with managing its financial health. The higher expenses are expected to prevail for the foreseeable future due to its expansion efforts into offline markets.
In 2Q 2024, Gaot Techedu Inc. (NYSE:GOTU)’s cost of revenues went up 70.0% to reach at RMB313.4 million from RMB184.4 million in 2Q 2023. This was mainly because of the expansion of the instructors and tutors workforce and the elevated cost of learning materials.
That being said, Wall Street analysts opine that increased retention rates and its diversification of customer acquisition channels, which includes live streaming, social media, and offline channels, should act as principal growth enablers. Gaot Techedu Inc. (NYSE:GOTU)’s focus on enhancing its quality of teaching and learning experience should result in increased retention rates and student engagement.
Given its strategic emphasis on talent cultivation and operational efficiency in customer acquisition, Gaot Techedu Inc. (NYSE:GOTU) continues to position itself for strong and stable growth and for expansion in educational offerings. Considering the company’s focus on offline expansion and application of AI to improve cost reduction and efficiency, Gaot Techedu Inc. (NYSE:GOTU) expects total net revenues in the range of RMB1.188 billion – RMB1.208 billion. Also, strong growth in gross billings should continue for the foreseeable future.
As per Wall Street, Gaot Techedu Inc. (NYSE:GOTU) has an average price target of $2.94. Additionally, 18 hedge funds were long Gaot Techedu Inc. (NYSE:GOTU) in 2Q 2024, up from 17 in the preceding quarter.
8) Bilibili Inc. (NASDAQ:BILI)
Short % of Float (8/30/2024): 7.34%
Number of Hedge Fund Holders: 25
Bilibili Inc. (NASDAQ:BILI) is a Chinese online entertainment platform, which is best known for its video-sharing site resembling YouTube.
Short sellers believe that there is growing regulatory scrutiny in the live-streaming segment, which might continue to pose a risk to Bilibili Inc. (NASDAQ:BILI)’s advertising growth, primarily considering the deteriorating macroeconomic conditions. Also, the short sellers highlighted that the company’s costs might continue to weigh over its earnings and margins.
In 2Q 2024, its cost of revenues came in at RMB4.29 billion (US$590.9 million), which was an increase of 5% as compared to the same period in 2023. This was mainly because of higher revenue-sharing costs, which represent a key component of the cost of revenues. This might weigh over the margins if its revenue growth is not able to exceed such costs.
On the other hand, global fund managers believe that the company’s diverse revenue streams are expected to offset short-term challenges. Moreover, Bilibili Inc. (NASDAQ:BILI) is well-placed to exploit the commercialization capabilities, which should aid profitability in future quarters. The company focuses on expanding its advertising business in emerging verticals and maintaining an above-industry average growth. Therefore, Wall Street believes that Bilibili Inc. (NASDAQ:BILI) will see continued growth and margin expansion in 2H 2024.
Also, the company’s focus on AI and partnerships with leading AI companies should enhance user experience and support its ongoing expansion. Bilibili Inc. (NASDAQ:BILI)’s evolving content categories and increased consumption trends among users provide visibility for the diversified and expanding user base.
JPMorgan Chase & Co. upped the company’s shares from a “Neutral” rating to an “Overweight” rating. The company gave a price target of $21.00 on 18th June. As per Insider Monkey’s data, 25 hedge funds were long Bilibili Inc. (NASDAQ:BILI).
7) iQIYI, Inc. (NASDAQ:IQ)
Short % of Float (8/30/2024): 10.85%
Number of Hedge Fund Holders: 17
iQIYI, Inc. (NASDAQ:IQ) provides video entertainment services. It offers movies, television dramas, variety shows, and other video content.
As of 30th August 2024, its short percentage of float stood at ~10.85%, with short sellers expecting that the company will continue to see headwinds related to its customer growth. Its recent efforts to bolster the content library, both in terms of quantity and quality, demonstrated brief signs of success, but they have not translated to long-term growth. Therefore, iQIYI, Inc. (NASDAQ:IQ) might encounter challenges related to membership growth. Also, the company might see competitive pressures not only from streaming platforms but also from short video and live-streaming mediums. Collectively, these factors continue to raise margin and profitability concerns.
On the other hand, Wall Street analysts believe that iQIYI, Inc. (NASDAQ:IQ) should be able to maintain profitability over the near term as a result of expectations of lower content costs, which are now ~50%-60% of sales. With a focus on innovation and user experience, iQIYI, Inc. (NASDAQ:IQ) continues to implement numerous strategies to beat its competition and tap new market opportunities. The company has been focusing on content diversification in a bid to cater diverse preferences of the audience.
Apart from attracting new users, this should also help in retaining the existing ones. It will translate to increased user engagement and loyalty. Therefore, the company’s extensive content library, advanced technology (such as AI-driven recommendations), and expectations of higher user engagement are expected to act as critical tailwinds, which should help in revenue and earnings growth.
As per Wall Street analysts, the shares of iQIYI, Inc. (NASDAQ:IQ) have an average price target of $3.59. Insider Monkey’s 2Q 2024 revealed that iQIYI, Inc. (NASDAQ:IQ) was in the portfolios of 17 hedge funds.
6) EHang Holdings Limited (NASDAQ:EH)
Short % of Float (8/30/2024): 12.36%
Number of Hedge Fund Holders: 7
EHang Holdings Limited (NASDAQ:EH), with its subsidiaries, is engaged in developing and marketing an autonomous aerial vehicle (AAV) technology platform. The company delivers proprietary passenger-carrying AAVs, related command-and-control systems, and commercial solutions.
The company released its results for 2Q 2024, in which it missed its earnings per share (EPS) analyst estimates by 29%. EHang Holdings Limited (NASDAQ:EH)’s basic and diluted net loss per ordinary share came in at RMB0.54 (US$0.07). Short sellers believe that the company’s increased operating expenses might continue to impact its bottom line and margins. In 2Q 2024, its total operating expenses came in at RMB143.3 million (US$19.7 million) as compared to RMB82.0 million in 2Q 2023.
Also, late last year, a renowned short-seller alleged that EHang Holdings Limited (NASDAQ:EH) has a major credibility issue-whether it be a false representation of its massive 1,300+ unit preorder book or misleading early sales, pointing to fake revenue. The short seller mentioned that, with its consistent underinvestment in R&D, the company needs to rework its entire design to satisfy safety needs for the use cases.
On the other hand, Wall Street analysts believe that EHang Holdings Limited (NASDAQ:EH) achieved positive milestones, which include product listing and government approval in China. The company’s long-term growth outlook stems from increased government support, consumer willingness to pay, and management of financial difficulties. EHang Holdings Limited (NASDAQ:EH) has started selling the EH216-S model flying taxi on Taobao for the consideration of 2.39 million yuan ($332,060).
Market experts believe that EHang Holdings Limited (NASDAQ:EH) should be supported by sectoral tailwinds, such as the trend of the low-altitude transport economy. The company’s competitive advantages include its leading position regarding government support and technology advancement. The company continues to leverage the manufacturing value chain in China, which should help it in expanding its manufacturing line to scale up.
UBS Group assumed coverage on the shares of EHang Holdings Limited (NASDAQ:EH) on 28th August. They gave a “Buy” rating, with a price target of $22.00. At the end of 2Q 2024, 7 hedge funds held stakes in the company, as per Insider Monkey’s database. Deep Sail Capital, an investment management company, released its third quarter 2023 investor letter. Here is what the fund said:
“Our worst-performing short position was EHang Holdings Limited (NASDAQ:EH), which saw significant upside from EVtol excitement and exhibited squeeze dynamics in the quarter. We seek to avoid these types of squeezes and are attempting to be nimbler in our short positioning at these levels.”
5) NIO Inc. (NYSE:NIO)
Short % of Float (8/30/2024): 13.06%
Number of Hedge Fund Holders: 20
NIO Inc. (NYSE:NIO) operates in China’s premium EV market. It designs and jointly manufactures, and sells smart and connected premium electric vehicles, driving innovations in next-generation technologies in connectivity, autonomous driving, and artificial intelligence.
Short sellers believe that weaker demand and an intense price war in NIO Inc. (NYSE:NIO)’s home market, China, at the start of 2024 prompted several EV makers to decrease their prices and provide big promotions. NIO Inc. (NYSE:NIO) did the same, which weighed over its bottom line. Earlier, the company reduced its first-quarter delivery guidance to 30,000 vehicles, compared to guidance of 31,000 – 33,000 units.
Before this, NIO Inc. (NYSE:NIO) saw deliveries of over 50,000 units for its 4Q 2024. These were down ~9.7% on a sequential basis. Therefore, declining deliveries and compression in the margins are other risks that are being highlighted by the short sellers. Also, the potential for operational delays in scaling production and expectations of weaker demand for EVs might impact its stock price.
However, Wall Street analysts believe that NIO Inc. (NYSE:NIO) is well-placed to recover in 2H 2024. The improvement in financial performance, a strong and healthy pipeline of new models, increased sales volumes, and favorable industry conditions in the country’s rapidly expanding new energy vehicle (NEV) market are some of the factors likely to support the company’s stock. Analysts are quite optimistic about NIO Inc. (NYSE:NIO)’s upcoming launch of the L60 model, which already generated positive feedback.
Wall Street believes that the company’s stock should be supported by an improved product mix and scale efficiencies. Collectively, these factors are expected to result in gross margin expansion.
Analysts at JPMorgan Chase & Co. raised the company’s shares from a “Neutral” rating to an “Overweight” rating. The company raised its price target on the shares of NIO Inc. (NYSE:NIO) from $5.30 to $8.00 on 6th September. It was held by 20 hedge funds in 2Q 2024, with total stakes worth $82.1 million.
4) DouYu International Holdings Limited (NASDAQ:DOYU)
Short % of Float (8/30/2024): 13.27%
Number of Hedge Fund Holders: 8
DouYu International Holdings Limited (NASDAQ:DOYU) is a game-centric live-streaming platform in China. It operates its platform on both PC and mobile apps.
The company released its 2Q 2024 financial results, with revenues declining 25.9% YoY to reach $142.01 million, and missing the analyst consensus estimate of $186.96 million. Short sellers believe that the soft environment in this sector is expected to continue, which might lead to product discounting and a reduction in promotional events. This might impact DouYu International Holdings Limited (NASDAQ:DOYU)’s gross margin. Moreover, the stiff competition from short video platforms along with the downturn in the macroeconomic environment might continue to weigh over its performance in the short term.
Therefore, increased competitive pressures from alternative streaming platforms might continue to hurt the user base and revenue streams of DouYu International Holdings Limited (NASDAQ:DOYU). Weakness in user spending might pose challenges to future growth, as per short sellers.
That being said, Wall Street analysts believe that DouYu International Holdings Limited (NASDAQ:DOYU) should be supported by strategies focused on enhancing streamer engagement and revenue generation. These strategies include revising the streamer recruitment model and improving the reward mechanism. The company highlighted the collaborations with game developers, emphasizing revenue diversification with the help of game membership services and prop sales.
DouYu International Holdings Limited (NASDAQ:DOYU) continues to focus on enriching its content ecosystem and enhancing its diversified commercialization capabilities. Its revenue and earnings growth should be aided by a diverse and game-centric content ecosystem, courtesy of its deep-rooted streamer resources and premium content.
HSBC upgraded the company’s shares from a “Reduce” rating to a “Hold” rating, setting a price target of $15.00 on 3rd July. Notably, DouYu International Holdings Limited (NASDAQ:DOYU) was in the portfolios of 8 hedge funds.
3) JinkoSolar Holding Co., Ltd. (NYSE:JKS)
Short % of Float (8/30/2024): 15.42%
Number of Hedge Fund Holders: 7
JinkoSolar Holding Co., Ltd. (NYSE:JKS) manufactures solar products. It produces silicon wafers, solar cells, and solar modules.
Short sellers believe that the company is exposed to risks related to oversupply and volatile pricing, which can weigh over its revenues moving forward. Also, JinkoSolar Holding Co., Ltd. (NYSE:JKS) delayed or suspended capacity expansion projects, and some manufacturers decided to cut or suspend production. Caixin Global recently reported that China’s National Energy Administration has been taking steps to slow the breakneck expansion of China’s solar industry, primarily by curbing low-end solar production. Also, Bloomberg mentioned that India is focused on self-sufficiency in solar manufacturing. As a result, the country is planning to restrict solar imports from China.
The company released its 2Q 2024 financial results, with gross profit reaching RMB2.68 billion (US$368.3 million), reflecting a fall of 2.1% sequentially and 44.0% YoY. Its gross margin was impacted as a result of the decline in the average selling price of solar modules.
However, Wall Street analysts and industry veterans believe that JinkoSolar Holding Co., Ltd. (NYSE:JKS)’s stock is well-placed to take off, given its expansion plans in the Middle East, mainly in Saudi Arabia. Also, the optimism stems from the fact that it continues to maintain a strong R&D and patent position in the TOPCon IP landscape. There are expectations that N-type TOPCon might dominate with 100% penetration next year. By the 2Q 2024 end, the company’s product secured more than 80% visibility of the 2024 order book and it achieved fresh records in cell efficiency.
Also, in 2H 2024, there can be some stability in its gross margins as average selling prices are expected to stabilize in 3Q 2024. This momentum should continue in 4Q 2024. The company’s globalization strategy continues to pay off, as it became the first solar company to reach accumulative module shipments of 260 GW, covering ~200 countries and regions.
As of 2Q 2024, JinkoSolar Holding Co., Ltd. (NYSE:JKS) was held by 7 hedge funds, with the total stakes amounting to $15.4 million.
2) Weibo Corporation (NASDAQ:WB)
Short % of Float (8/30/2024): 21.48%
Number of Hedge Fund Holders: 15
Weibo Corporation (NASDAQ:WB) operates as a social media platform for people to create, distribute, and discover Chinese language content.
On a YTD basis, Weibo Corporation (NASDAQ:WB)’s stock has seen a decline of over ~30% amidst investor concerns over regulatory pressures and the deterioration of the Chinese economy. Short sellers believe that the company continues to face both internal and external pressures, which continue to impact its financial landscape. The persistent growth of operating expenses and marketing outlays for the Olympics, together with investments in content and user acquisition might weigh over its operating profit in 2H 2024. According to short sellers, Weibo Corporation (NASDAQ:WB) might face pressures in its advertising revenue in 2H 2024.
On the other hand, Wall Street analysts believe that Weibo Corporation (NASDAQ:WB)’s continuous investment in AI technology should help the company in sustained recovery. These investments are focused on enhancing content production and commercialization, targeting improved monetization competitiveness and user engagement. Moreover, they believe that the company’s partnerships with Tmall and content marketing solutions should act as key revenue drivers.
Weibo Corporation (NASDAQ:WB) has plans to further strengthen its monetization competitiveness as it continues to focus on hot trends, IPs, and vertical content ecosystems. The company focuses on stabilizing or returning to growth in the broader cosmetic and beauty sector by 4Q 2024. Moreover, the approval of the language model by the government should improve its AI products.
As per Wall Street analysts, shares of Weibo Corporation (NASDAQ:WB) have an average price target of $11.42. As per Insider Monkey’s 2Q 2024 data, 15 hedge funds reported owning stakes in Weibo Corporation (NASDAQ:WB).
1) TAL Education Group (NYSE:TAL)
Short % of Float (8/30/2024): 22.08%
Number of Hedge Fund Holders: 33
TAL Education Group (NYSE:TAL) is one of the leading K-12 after-school tutoring providers in China. It offers tutoring services to students.
As of 30th August 2024, the company’s short % of float stood at ~22.08%, with short sellers anticipating that TAL Education Group (NYSE:TAL) is expected to see margin pressures. This is mainly due to concerns about regulatory pressures and competitive forces in the education sector, which might lead to inconsistent revenue growth. Moreover, short sellers highlighted that growth in expenses might also weigh over its stock price.
In 1Q 2025, TAL Education Group (NYSE:TAL)’s cost of revenues went up by 43.4% to US$200.0 million from US$139.5 million in 1Q 2024, with selling and marketing expenses increasing by 25.4% to US$122.4 million in the current quarter.
However, Wall Street analysts believe that TAL Education Group (NYSE:TAL) has plans to invest in learning services, enhance its offline learning center capacity, and integrate artificial intelligence technology into its learning devices. Collectively, these measures are expected to reduce costs and boost revenues and earnings. With the target of expanding in the overseas market, the company continues to launch new products in the online enrichment space to offer innovative and interactive learning experiences.
Market experts are optimistic about the company’s enrichment learning program, which should aid in strong revenue growth across product categories.
As per Wall Street analysts, the shares of TAL Education Group (NYSE:TAL) have an average price target of $17.78. Insider Monkey’s 2Q 2024 data highlighted that 33 hedge funds held stakes in TAL Education Group (NYSE:TAL), with the stakes amounting to $356.9 million.
While we acknowledge the potential of TAL as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than the ones mentioned on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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