In this article, we will look at the 12 Cheap Chinese Stocks to Buy According to Hedge Funds.
Trump’s Back and China’s Stimulus Lags
Trump is back as the President of the United States and China’s stimulus plans have let down investors, which has created more economic uncertainty regarding China. China is trying to fix its economy and Trump’s comeback to the White House means steep tariffs for Chinese-made goods. In his first term, President-elect Donald Trump imposed tariffs up to 25% on Chinese goods, initiating a trade war between two global giants. Trump’s second stint in the office is expected to imply tariffs as high as 60% on Chinese-made goods.
On the other hand, China’s stimulus of $1.5 trillion or nearly 10 billion yuan to back its economy doesn’t seem to appeal the investors. China’s stimulus has come at a time when the economy is struggling badly and there are potential tariff threats from the new U.S. administration. In addition to that, overseas companies are drawing their money out of China as the growth outlook seems gloomier. In the first nine months of 2024, foreign direct investment (FDI) slid nearly $13 billion. According to China’s Administration of Foreign Exchange, the FDI outflows exceeded $8.1 billion in Q3, potentially leading to a net FDI outflow for the first time since 1990. This shows that investors are still pessimistic regarding China’s economic reforms aimed at stabilizing growth.
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Other Problems with the Chinese Economy
The consumer price inflation (CPI) in October eased to 0.3% year-over-year compared to an expected 0.4%, while the producer price index (PPI) dropped by 2.9% year-over-year in October, slightly widening from the 2.8% decline observed in September 2024. Following the U.S. elections and China’s lower-than-expected inflation outcome, UBS has lowered China’s 2025 GDP growth estimate to 4% from the 4.5% it made in October. The Swiss Bank anticipates the GDP growth for 2026 to be also considerably lower.
What Could Happen in the Short-Term and the Long-term?
With Trump’s victory and the news regarding sparking expectations of steep tariffs, U.S. importers are expected to rush to front-load goods from China before the Presidential inauguration in January 2025. This could potentially lead to cost increases and deliver a surprising push to Chinese exports.
In the long run, analysts expect Trump’s tariff policy’s impact on the Chinese economy would be modest. However, the additional tariffs could hit exports and lead to a higher fiscal deficit or currency depreciation for China. Economists at Capital Economics project that the direct impact of large U.S. tariffs on China would be less than 0.5% of its GDP. The reason for this can be exporters finding alternative routes via other countries and also receiving support from depreciation of the yuan.
The Hang Seng Index has plunged more than 4% over the last five days, as of November 15, while the CSI 300 index has plummeted by nearly 2.50% in the last five days and is up by almost 3% in the last month. We can see the mixed reaction of the market considering the recent events.
With that, let’s take a look at the 12 cheap Chinese stocks to buy according to hedge funds.
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Our Methodology
To find the 10 Cheap Chinese Stocks to Buy According to Hedge Funds, first, we used stock screeners and shortlisted Chinese stocks listed on US exchanges with a market capitalization of more than $1 billion and a forward P/E ratio of less than 15, as of November 15. We narrowed down our selection to 10 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them, as of Q2 of 2024.
Why do we care about what hedge funds do? 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).
12 Cheap Chinese Stocks to Buy According to Hedge Funds
12. Autohome Inc. (NYSE:ATHM)
Number of Hedge Fund Holders: 16
Forward P/E Ratio: 12.85
Autohome Inc. (NYSE:ATHM) is a holding firm that runs one of the leading online retail platforms for automobiles. The company has access to a wide customer base and the data is used to generate leads and assist in advertising services. Lead generation services allow Autohome dealer subscribers to create their online stores, while media services assist with marketing solutions in connection with brand promotion, new model releases, and sales promotion. The majority of the operations of the company are in Mainland China.
Based on customer needs, Autohome’s online automobile platform provides accurate and effective customized content and commercial offerings. During Q3 2024, the company’s average mobile daily active users increased by 5.6% year-over-year, crossing 70 million users. Autohome’s new professional content and product mix have strengthened its differentiated competitive advantages, leading to a solid improvement in traffic. The company organized over 500 offline auto shows in low-tier markets which helped in consumer engagement. The company’s initiatives such as “Hundred Cities ‘Trade-in for New’ Car-Buying Festival” bring a competitive edge to the company’s offering in the sector through higher consumer engagement.
In Q3, Autohome Inc. (NYSE:ATHM) improved its revenue by 3.1% year-over-year from the online marketplace and other segments. The company is taking long-term initiatives to continue its dominance in the competitive automobile market in China. Autohome expanded its new retail business into lower-tier cities, introducing a network of over 50 stores in the last quarter. One of the keys to Autohome’s successful initiatives is its collaboration with Ping An Group. The company plans to utilize Ping An Group’s off-line resources and aftermarket service capabilities to have an upper edge in the online auto industry.
11. iQIYI, Inc. (NASDAQ:IQ)
Number of Hedge Fund Holders: 17
Forward P/E Ratio: 7.32
iQIYI, Inc. (NASDAQ:IQ) is China’s leading online entertainment services company that is often referred to as the “Netflix of China.” iQIYI provides original content such as movies, television shows, and a variety of other genres. Some of the well-known shows hosted by the company include The Lost Tomb, The Mystic Nine, Burning Ice, Qipa Talk, and The Rap of China, among others. iQIYI’s over-the-top streaming (OTT) service has a similar business model to Netflix which is subscription-based. The company charges a monthly fee of $6.99 for Standard and $9.99 for Premium offering.
iQIYI has a subscriber base of over 100 million and has more than 400 million monthly active users. iQIYI, Inc. (NASDAQ:IQ) is continuing to expand into new markets to enhance its future growth. The company’s expansion policy has reaped fruits as the annual membership revenue soared notably in markets including Hong Kong and the U.K.
However, the company fell short in the second quarter of 2024 mainly due to fluctuation in iQIYI’s content slate performance. In Q2, the company posted a 5% year-over-year drop in revenue. IQ seems to be a cheap stock as it has a forward P/E of just over 7 and is trading at a discount of almost 38% to its sector median of 14.07%.
10. ZTO Express (Cayman) Inc. (NYSE:ZTO)
Number of Hedge Fund Holders: 18
Forward P/E Ratio: 12.06
ZTO Express (Cayman) Inc. (NYSE:ZTO) is a China-based logistics company and has an extensive line-haul transportation and sorting network, which are part of the company’s express delivery services. The company operates in domestic and overseas markets. ZTO had a 22.9% market share in terms of parcel volume, as of 2023. The company’s first-mile pickup and last-mile delivery policy allows it to maintain a low-cost structure and expand its geographic reach across China.
ZTO Express (Cayman) Inc. (NYSE:ZTO) has a strategic collaboration with Alibaba as the Chinese e-commerce giant owns over 10% stake in ZTO. This collaboration assists ZTO Express’ logistics operations, improving its market reach, and giving access to Alibaba’s large customer base which is a major growth driver.
During the second quarter of 2024, ZTO Express Inc. (NYSE:ZTO) continued to improve its parcel volume growth, reporting a 10% year-over-year increase that reached 8.45 billion. The parcel volume growth helped the company generate over 10% more revenue compared to Q2 2023 as revenue reached $1.48 billion. Whereas, the adjusted net income also surged 11% year-over-year to $386.1 million in Q2. For the full-year 2024, the company expects its volume to grow between 15% and 18%, reflecting confidence in its ability despite macroeconomic softness. In addition, ZTO’s China parcel volume soared 21.3% year-over-year, exceeding expectations.
ZTO Express (Cayman) Inc. (NYSE:ZTO) has a well-established position and it continues to improve its profitability and parcel volume. The continued growth in China’s e-commerce sector presents a potential growth opportunity for ZTO Express.
9. Qifu Technology, Inc. (NASDAQ:QFIN)
Number of Hedge Fund Holders: 27
Forward P/E Ratio: 6.07
Qifu Technology, Inc. (NASDAQ:QFIN), previously known as 360 DigiTech, is a China-based firm that operates a data-driven platform that allows financial institutions to provide better and targeted products and services to a broader consumer base. The company offers services in two ways including credit-driven services and platform services based on the nature of credit risk. The company also provides standardized risk management services such as software-as-a-service (SaaS) modules to institutional clients.
According to analysts, Chinese banks are likely to experience record-low profit margins following Beijing’s broader stimulus package. On the other hand, Qifu Technology, Inc. (NASDAQ:QFIN) might benefit from it as the demand for credit risk management might soar for financial institutions.
During Q2 2024, Qifu Technology’s (NASDAQ:QFIN) net income increased by 23% year-over-year, driven by a significant provision write-back and lower operating costs. In the third quarter, the company expects a normalized earnings growth of 36% year-over-year. Moreover, the company also anticipates additional provision write-backs in the coming quarters due to increased asset quality.
The company has a potential fiscal year 2024 buyback yield of 9.5%, mainly backed by its ongoing share repurchase program. Qifu Technology has engaged nearly 60% of its one-year $350 million buyback plan. The company has nearly 53.6 million cumulative users with approved credit lines, while it has 160 cumulative financial institution partners.
8. Vipshop Holdings Limited (NYSE:VIPS)
Number of Hedge Fund Holders: 21
Forward P/E Ratio: 5.87
Vipshop Holdings Limited (NYSE:VIPS) is a leading consumer cyclical company with operations in China’s online retail market. The company offers branded products on its vip.com website, while it operates via its segments including sales, product distribution, and offering of goods on its online platforms. Vipshop offers products from more than 17,000 domestic and international brands.
Vipshop Holdings Limited (NYSE:VIPS) has demonstrated strong results so far in 2024 despite the economic constraints in China. During the second quarter, the company posted a revenue of $3.77 billion, exceeding consensus estimates by $108.72 million, while the gross profit increased by 2.2% year-over-year to $872.6 million. Thanks to Vipshop’s robust business strategy, the company reached peak operational efficiency. The company’s active SVIP members soared by 11% from a year ago and accounted for 40% of Vipshop’s online spending.
Vipshop Holdings Limited (NYSE:VIPS) has a solid business model and the results continue to back its growth. The key to the company’s growth in these tough economic circumstances is its discount retail model. Vipshop’s gross merchandise value (GMV) from Made for VIP increased over 140% year-over-year in Q2.
7. Kanzhun Limited (NASDAQ:BZ)
Number of Hedge Fund Holders: 24
Forward P/E Ratio: 14.21
Kanzhun Limited (NASDAQ:BZ) is a holding company that provides the largest online recruitment services in China. The company connects job seekers and enterprise users through its interactive BOSS Zhipin platform. The company also has two recruitment information service platforms including Dianzhang Zhipin and Kanzhun.
Kanzhun Limited (NASDAQ:BZ) continues its dominance as the largest online recruitment service provider in China. Kanzhun’s average verified monthly active user (MAU) on the BOSS Zhipin app grew by 25% from a year ago to 54.5 million in Q2. For the first two quarters combined, the company attracted nearly 28 million newly added verified users.
The growth in the engagement of Kanzhun Limited’s platforms added calculated cash billings of RMB1.95 billion, a rise of 20% year-over-year. The company’s revenue reached RMB1.92 billion, or $269.04 million, up by 29% from a year ago. In addition, Kanzhun’s total paid enterprise customers for the one year ended June 30, reached 5.9 million, representing 31% year-over-year growth.
Kanzhun Limited’s (NASDAQ:BZ) growth has improved its profitability and there is a huge upside for long-term structural growth as China has a huge market with the highest small and medium-sized enterprise activities and the largest number of enterprises.
6. NetEase, Inc. (NASDAQ:NTES)
Number of Hedge Fund Holders: 35
Forward P/E Ratio: 10.54
NetEase, Inc. (NASDAQ:NTES) is a Chinese technology firm with a major presence in the e-gaming segment. The company operates through four business segments including the Online Game Service, Youdao, Cloud Music, and NetEase Live.
The gaming segment of the company is well-established and is known for Westward Journey, the Onmyoji series, and others. NetEase’s gaming division has a portfolio of over 100 game products and strategic collaborations with leading gaming firms. The company also provides games licensed from external game creators. Other segments such as Youdao offer intelligent learning services, while NetEase Live provides advertising services via high-end email and other value-added services.
Earlier in March 2024, the company partnered with Sandsoft Games to establish a joint venture to expand its game publishing and esports activities in the MENA region. Saudi Arabia is one of the fastest-growing economies, and it is widely investing in gaming sectors, which gives NetEase an opportunity.
NetEase underperformed in the third quarter of 2024 as the company’s earnings fell short of analysts’ estimates. The company missed consensus estimates mainly due to concerns regarding the core gaming segment’s competitiveness. However, the PC games segment was the highlight with growth in net revenue which improved 29% from a year ago and 30% compared to last quarter.
NetEase is also focused on its AI-driven subscription services which have experienced six consecutive quarters of rapid sales expansion, with nearly 200% year-over-year growth in Q2. NTES currently has a forward P/E of 10.54 and is trading at a discount of almost 18% compared to its sector median of 13.83.
5. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 42
Forward P/E Ratio: 8.55
Baidu, Inc. (NASDAQ:BIDU) is a Chinese tech giant that has the largest internet search engine in China. The company generates the majority of its revenue from advertising and search. Baidu also provides online marketing services including pay-for-performance and auction-based services. The company is focusing on AI business and enhancing its presence mainly in autonomous driving technology.
Baidu, Inc. (NASDAQ:BIDU) is working on AI and aims to make it a key growth driver. The company just revealed its smart glasses powered by an AI assistant. Similar to Meta’s glasses, Baidu’s eyeglasses also have cameras to capture photos and videos and support voice interactions powered by Ernie. The glasses are produced by the company’s hardware division firm, Xiaodu.
In addition to that, Baidu’s AI cloud services are also experiencing rapid growth. The company’s ERNIE is now handling over 600 million API calls daily, as of Q2 2024. ERNIE’s capabilities through API calls have assisted the company’s customers in improving their matching process between job descriptions and resumes, helping firms reduce their labor costs by over 50%.
On top of being a leader in search and now investing in AI adds huge growth potential for Baidu. Moreover, the company’s autonomous vehicles through the Apollo project have garnered significant attention. Apollo Go has successfully achieved a 100% fully driverless ride-hailing service, practically implemented in the entire Wuhan municipality.
Baidu, Inc. (NASDAQ:BIDU) is well-positioned in the growing AI market in addition to the company’s successful search business. BIDU has a forward P/E of 8.55 and it is currently trading at a discount of over 40% compared to its sector median of over 13.
4. Silicon Motion Technology Corporation (NASDAQ:SIMO)
Number of Hedge Fund Holders: 43
Forward P/E Ratio: 13.97
Silicon Motion Technology Corporation (NASDAQ:SIMO) is a provider of NAND flash controllers for solid-state storage drives (SSD) and other SSD devices. The American-Taiwanese company engages in the design, development, and sale of low-power semiconductor solutions for OEMs and other customers. Silicon Motion Technology’s products are used in tablets, PCs, smartphones, and other devices.
The company is focusing on the growing PC market. Silicon Motion Technology Corporation (NASDAQ:SIMO) is moving into the high-end PC and expects to expand its market through the introduction of its first PCIe 5.0 controllers. Moreover, the company is also growing its SSD market share in the game console, automotive, industrial, IoT, and other markets. Especially in markets such as China, the company’s module-maker customers can deliver solutions that comply with increasing localization standards.
During the third quarter of 2023, the company experienced a significant growth of 60% year-over-year from NAND maker customers, attributed to new product introductions and strategic partnerships. The revenue was reported at $212.40 million, a 23% increase from a year ago. The gross margins were 46.8% higher year-over-year, marking the sixth consecutive quarter of increase.
Silicon Motion Technology Corporation (NASDAQ:SIMO) is expanding its presence in all the markets and has great growth opportunities. SIMO is currently trading at a discount of almost 39% from its sector median of 25, as it has a forward P/E of just under 14.
3. JD.com, Inc. (NASDAQ:JD)
Number of Hedge Fund Holders: 59
Forward P/E Ratio: 9.72
JD.com, Inc. (NASDAQ:JD) is a leading Chinese e-commerce company that specializes in retailing consumer electronics, apparel, and household products. The company also has operations in segments such as logistics, marketing services, and property classifieds.
The company’s retail business is its largest segment which accounts for almost 90% of JD’s net revenue. Whereas, the company’s logistics business has established a comprehensive infrastructure, including warehouses and delivery networks, enhancing the efficiency of product delivery.
JD.com, Inc. (NASDAQ:JD) is expanding its third-party merchant platform with significant investments, positioning itself for long-term success and competitiveness in the e-commerce market. In addition to that, the company’s net revenue has grown at a CAGR of 19% between 2019 to 2023, reflecting the company’s strong presence in the sector.
JD.com, Inc. (NASDAQ:JD) is expanding outside China and entering new markets to expand its reach. On November 1st, JD announced expanding its e-commerce network to Malaysia and Thailand, which will potentially increase sales for the retail segment.
Ariel Global Fund stated the following regarding JD.com, Inc. (NASDAQ:JD) in its first quarter 2024 investor letter:
“We initiated a position in China-based technology-driven E-commerce company, JD.com, Inc. (NASDAQ:JD). The brand has long been known across the region as a superior online shopping channel due to its unique first-party model and unparalleled fulfillment service underpinned by JD Logistics. Yet, a challenging macro environment drove shares lower as shoppers began seeking bargains. In response, the company made significant investments in elevating its third-party merchant platform to enhance its variety of product offerings and price competitiveness for consumers. We believe these actions will yield an improved product mix, stronger top-line growth, and margin expansion on a go-forward basis.”
2. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 86
Forward P/E Ratio: 8.46
PDD Holdings Inc. (NASDAQ:PDD) is a holding company with a portfolio of businesses. Pinduoduo and Temu are two of the most famous e-commerce brands of PDD. The company has built a network of sourcing, logistics, and fulfillment capabilities that support its underlying businesses.
The company is working with high-quality merchants worldwide to improve its customized fulfillment solutions and enhance its supply chain, as the competition in the e-commerce market is getting intense. PDD Holdings Inc. (NASDAQ:PDD) is currently operating businesses in over 79 markets worldwide. As PDD senses growth opportunities in the sector, it is penetrating new markets. Temu is expanding rapidly in Europe and North America and has the potential to capture a large portion of the online global retail market. PDD focuses on small and medium businesses, which allows it to make cheap product listings on its platforms and attract a higher volume of consumers.
In Q2 2024, the company reached over 167 million monthly active customers, of which 50 million are based in the U.S. The company’s revenue soared over 89% year-over-year to $13.63 billion in Q2 2024. Revenues from the marketing services and others were up 29% from a year ago, while revenues from transaction services were up 234%.
1. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 91
Forward P/E Ratio: 10.88
Alibaba Group Holding Limited (NYSE:BABA) is China’s largest e-commerce and cloud services company. The company also operates brick-and-mortar stores, logistics services, and digital media services.
Alibaba improved its revenue growth from 2% in fiscal 2023 to 8% in fiscal 2024 and the same is expected for fiscal 2025. One major development with BABA has been that it has started paying dividends and has a dividend payout ratio of 11.70%. This shows that the Chinese giant is flexible in giving away some of its earnings to investors.
On October 10, Alibaba Group Holding’s Tmall shopping platform’s new brand increased by 239% from August to September, as reported by the South China Morning Post. In the third quarter, Tmall’s new brand openings increased by 70% from the previous quarter. On November 12, Taobao and Tmall Group saw a record number of active buyers, while the company’s peer JD.com reported over 20% increase in the number of shoppers from a year ago. This shows that the consumer market is improving considering the economic slowdown.
Investors are not much pleased with the government stimulus and the Chinese companies have plunged following an initial pump after the stimulus news. Alibaba has a net revenue CAGR growth of 32.38% from 2013 and 2023, which shows that BABA is well-positioned in the market. BABA is trading 10.88 times its forward earnings, which represents a 40% discount to the sector median of almost 18.
While we acknowledge the potential of Alibaba Group Holding Limited (NYSE:BABA) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BABA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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