In this article, we look at the 7 Cheap Chinese Stocks To Invest In Now.
The Economy of China
According to a report by the International Monetary Fund (IMF), China’s economy is projected to grow by 5% in 2024 and 4.5% in 2025, which is an upward revision of 0.4 percentage points for both years compared to the April projections. This growth is driven by strong Q1 GDP data and recent policy measures. However, risks are tilted to the downside due to a greater and longer-than-expected property sector adjustment and increasing fragmentation pressures.
In terms of inflation, the IMF expects core inflation to rise but remain low, with core inflation increasing only gradually to 1% in 2024. Over the medium term, growth is expected to decelerate to 3.3% by 2029 due to ageing and slower productivity growth.
China’s economy is facing challenges due to weak consumer spending amid economic issues such as a prolonged housing slump and high youth unemployment. Chinese tech firms are increasingly focusing on artificial intelligence (AI) as a potential new revenue stream. However, intense global competition limits the effectiveness of this approach.
The Chinese government needs to implement policies that restore consumer confidence and boost spending. In the second quarter of 2023, foreign investors pulled nearly $15 billion out of China due to the slowdown in economic growth and rising geopolitical tensions. The rapid shift towards electric vehicles in China has also caught some foreign car manufacturers off guard, leading them to scale back or withdraw their investments. China’s balance of payments has turned negative. If this trend continues, it could result in the first annual net outflow of foreign investment since 1990.
Despite efforts by the Chinese government to attract and retain foreign investment, such as lowering interest rates and encouraging the inflow of advanced technologies, foreign direct investment into China during the first half of the year was the lowest since the pandemic began in 2020. Chinese companies have been increasing their outbound investments, particularly in projects such as electric vehicles and battery factories, sending a record $71 billion overseas in the second quarter of 2023, up more than 80% compared to the same period in the previous year.
A Closer Look at China’s Investment Trends
Billionaire investor David Tepper, founder of Appaloosa Management, believes that Chinese stocks are undervalued, particularly compared to U.S. stocks, with many Chinese companies having single-digit P/E ratios despite high growth rates. Tepper expresses optimism about China’s economic measures, emphasizing that the Chinese government is actively promoting consumption and taking aggressive steps that investors have long called for. In his view, China’s internal fiscal stimulus is a major driver for growth, downplaying external risks such as tariffs and focusing on how these actions could benefit the country’s economy and related markets, such as Japan and South Korea. He points out that other major economies, such as Europe and Japan, are also lowering rates, but China’s measures seem more aggressive and promising, especially for investors.
Timothy Moe, Chief Asia Pacific Equity Strategist at Goldman Sachs, has an optimistic outlook for the APAC equity markets amid recent volatility. Regarding China, Moe points out its weaker performance relative to other APAC markets but notes its diversification benefits. He stresses the need for more policy support from Chinese authorities to boost domestic demand and economic growth. Moe is strategically positive on China’s A-shares due to their potential benefit from structural market developments but prefers offshore Chinese equities in the short term. Looking ahead, he forecasts a 12% earnings growth for the APAC region in 2025, slightly below consensus expectations.
China’s economic growth is expected to slow down in the coming years, with projected growth rates of 5% in 2024 and 4.5% in 2025. Despite efforts by the government to stimulate growth, the economy is facing challenges such as weak consumer spending, a prolonged housing slump, and high youth unemployment. With that in context, let’s take a look at the 7 cheap Chinese stocks to invest in now.
Our Methodology
To compile our list of 7 cheap Chinese stocks to invest in now, we used Yahoo and Finviz stock screeners to compile an initial list of 40 Chinese companies. From that list, we screened for companies that are trading at a forward P/E ratio of under 15 as of September 29. We then narrowed our choices to 7 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
At Insider Monkey, we are obsessed with 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).
7 Cheap Chinese Stocks To Invest In Now
7. Autohome (NYSE:ATHM)
Number of Hedge Fund Investors: 16
Forward P/E Ratio as of September 29: 14.20
Autohome (NYSE:ATHM) is a leading online marketplace for automobiles in China. The company provides lead generation and advertising service and has a strong brand reputation along with a dominant position in the online auto marketplace.
Autohome (NYSE:ATHM) has a dedicated platform for new energy vehicle (NEV) buyers, which includes listings, specs, comparisons, reviews, and ratings. According to the China Passenger Car Association (CPCA), the NEV market is expected to maintain strong growth momentum in 2024. Net sales are expected to increase by 2.3 million units to 11 million units, representing a 22% year-over-year increase, the NEV market is expected to grow at a CAGR of 17.15% over the next five years.
Furthermore, in August, the Chinese government announced plans to upgrade the national car renewal process, aiming to boost domestic consumption. As part of this initiative, the government will increase subsidies for consumers who scrap old cars and purchase new ones. Specifically, the subsidy for buying a new-energy vehicle (NEV) will rise to 20,000 yuan ($2,857), up from 10,000 yuan ($1,428). In comparison, the subsidy for buying a fuel vehicle will increase to 15,000 yuan ($2,142), up from 7,000 ($1,000). This move is expected to encourage more consumers to participate in the car-renewal campaign, which was launched on April 24 this year. The car-renewal program is a good business opportunity for Autohome (NYSE:ATHM), which will drive revenue growth for the company.
Autohome (NYSE:ATHM) has 70 million mobile daily active users and is leveraging AI and machine learning to train proprietary data and algorithms which will enable it to efficiently match users and create value. The company’s stock is trading 14.20 times its forward-year earnings. Industry analysts have a consensus Buy rating on the stock, with an average share price target of $33.02, indicating a potential upside of 11.15% from its current level. As of the second quarter, 16 hedge funds held stakes in the company worth $94.54 million.
6. iQIYI (NASDAQ:IQ)
Number of Hedge Fund Investors: 17
Forward P/E Ratio as of September 29: 11.56
iQIYI (NASDAQ:IQ) is often referred to as the “Netflix of China,” a subscription-based video-on-demand and over-the-top streaming service that provides a vast library of original content. The company is majority owned by Baidu (NASDAQ:BIDU).
iQIYI (NASDAQ:IQ) has invested heavily in producing high-quality, exclusive content to attract users but faces stiff competition from other streaming services in China. Despite concerns, the company’s strong brand recognition and user base position it as a leader in the Chinese entertainment industry. The company generates revenue from both subscription fees and advertising, although the subscription model is more dominant.
iQIYI (NASDAQ:IQ) has made significant investments in artificial intelligence (AI) and research and development (R&D), which are expected to drive user growth and net sales. The company uses AI technology for video content creation, purchase, production, tagging, distribution, monetization, and customer service. iQIYI’s (NASDAQ:IQ) investments in R&D are expected to accelerate net sales growth, and its use of AI Radar and Watch Me Only features will support real-time recognition and searching information from video images, leading to increased subscribers and net sales growth.
iQIYI’s (NASDAQ:IQ) stock price appears undervalued compared to its peers, with a forward price-to-earnings (P/E) ratio of 11.56, which represents a 17.02% discount compared to the sector median of 13.94. As of the second quarter, 17 hedge funds own stakes in the company valued at $148.21 million. Industry analysts have a consensus for the stock’s Buy rating, with a median price target of $3.38, suggesting a potential upside of almost 17.71% from current levels.
5. Qifu Technology (NASDAQ:QFIN)
Number of Hedge Fund Investors: 21
Forward P/E Ratio as of September 29: 5.72
Qifu Technology (NASDAQ:QFIN), formerly known as 360 DigiTech, is a data-driven digital platform that enables financial institutions to provide better and targeted products and services to a broader consumer base. The company also offers standardized risk management services in the form of software-as-a-service (SaaS) modules to institutional clients. Qifu Technology (NASDAQ:QFIN) primarily offers credit solutions in the form of loans to consumers and small businesses in China.
Qifu Technology (NASDAQ:QFIN) has strong earnings growth prospects, driven by its ability to improve asset quality and reduce operating costs. In Q2, the company’s net income increased 23% year-over-year, driven by a significant provision write-back and lower operating costs. This improvement in earnings is expected to continue in the third quarter, with the company guiding for normalized earnings growth of 36% year-over-year. Qifu Technology (NASDAQ:QFIN) management has also indicated that it expects additional provision write-backs in the coming quarters, driven by improving asset quality.
Qifu Technology (NASDAQ:QFIN) has a strong track record of growth and profitability. The company offers an attractive shareholder yield and has a potential FY 2024 buyback yield of 9.5%, driven by its ongoing share repurchase program. The company has already executed on 60% of its one-year $350 million buyback plan, and its management has indicated that it intends to sustain a “very active pace” of share repurchases. Furthermore, the company’s forward FY 2024 dividend yield is 5.7%, providing investors with a regular stream of income. The combination of the buyback yield and dividend yield results in a potential FY 2024 shareholder yield of 15.2%.
Qifu Technology (NASDAQ:QFIN) has a forward P/E ratio of 5.72, which represents a 52% discount compared to the sector median of 11.93. The company’s earnings are expected to grow by 31.34% this year. Industry analysts have a consensus Buy rating on the stock, with an average share price target of $29.58, indicating a potential upside of 3.5% from its current levels.
As of the second quarter, 21 hedge funds held stakes in the company worth $319.22 million. According to Insider Monkey’s hedge fund database, OLP Capital is the largest shareholder in the company and owns stock valued at $141.19 million as of June 30.
4. NetEase (NASDAQ:NTES)
Number of Hedge Fund Investors: 35
Forward P/E Ratio as of September 29: 13.07
NetEase (NASDAQ:NTES) focuses on online services, with its core operations concentrated in the gaming, education, and e-commerce sectors. The company’s gaming division is responsible for developing and publishing a vast array of popular mobile and PC games, both within China and globally. With a portfolio of over 100 game products, NetEase (NASDAQ:NTES) has established itself as a notable player in the industry, forming strategic partnerships with renowned gaming companies, including Blizzard.
NetEase (NASDAQ:NTES) boasts a robust pipeline of upcoming game releases, with several recent launches. Notably, the company’s Naraka: Bladepoint Mobile,, launched in China in July, has garnered positive reviews from players. Furthermore, its Hero Shooter and Marvel Rival have also received enthusiastic feedback from the gaming community. Expanding its reach, NetEase (NASDAQ:NTES) has also successfully launched Marvel Rivals on prominent gaming platforms, including PlayStation 5, Xbox Series X|S, and PC.
NetEase (NASDAQ:NTES) has an impressive $19 billion in cash and equivalents against almost no debt burden. This financial stability provides the company with the flexibility to aggressively invest in research and development (R&D) initiatives, as well as take risks on innovative new game releases. The combination of NetEase’s (NASDAQ:NTES) solid financial foundation and its promising pipeline of upcoming games makes the company an attractive investment opportunity.
NetEase’s (NASDAQ:NTES) stock is trading 13.07 times its forward-year earnings, which represents a 6.21% discount to the sector median of 13.94. The company’s earnings are expected to grow by almost 1% this year. However, industry analysts have a consensus Buy rating on the stock, setting an average share price target of $115.34, which indicates a 20.83% upside potential from its current levels. As of the second quarter, 35 hedge funds own stakes in the company valued at $993.75 million. According to Insider Monkey’s hedge funds database, Orbis Investment Management is the largest shareholder, with stakes worth $182.28 million.
3. Baidu (NASDAQ:BIDU)
Number of Hedge Fund Investors: 42
Forward P/E Ratio as of September 29: 9.32
Baidu (NASDAQ:BIDU) is a multinational technology company that operates the largest internet search engine, often referred to as the “Google of China.” The company is in the midst of a significant transformation and is shifting its focus from an internet-centric business to an AI-centric business, with a strong emphasis on autonomous driving technology.
Baidu’s (NASDAQ:BIDU) management remains confident that AI will be a key driver of long-term revenue. The company’s AI cloud services are rapidly growing, and its development of autonomous vehicles through its Apollo project has attracted attention. According to Fortune Business Insights, the autonomous driving market is projected to experience rapid growth, with a CAGR of 32% over the next six years, reaching nearly $39 billion by 2030. Baidu (NASDAQ:BIDU) is well-positioned to capitalize on this growing market, with its autonomous ride-hailing service, Apollo Go.
Wuhan has emerged as a key hub for Baidu’s (NASDAQ:BIDU) autonomous driving technology, with the company operating 24/7 in the city. There are currently 400 fully autonomous taxis operating in Wuhan, and the company plans to deploy 1,000 RT6 robotaxis on the streets of Wuhan by the end of 2024. The company’s RT6 is a significant improvement over previous generations, with a low unit cost of $27,500, which is half the cost of the previous generation vehicle. Additionally, a ride in a robotaxi costs half as much as traditional ride-hailing services.
Baidu (NASDAQ:BIDU) is also actively promoting its AI chatbot service, ERNIE, across its AI cloud, autonomous driving, and robotaxi businesses. This cross-promotion aims to improve user experience, boost advertiser ROI, and empower developers to build efficient applications that support millions of applications developed by a wide range of enterprise and individual developers.
The Apollo Go Robotaxi platform has the potential to pave the way for large-scale commercial autonomous ride-hailing services. With its growing presence in Wuhan and expanding fleet of RT6 robotaxis, Baidu (NASDAQ:BIDU) is well-positioned to capitalize on the growing demand for autonomous driving technology. As the company continues to advance its AI capabilities, it is likely to remain a leader in the autonomous driving space and drive long-term growth and profitability.
Baidu (NASDAQ:BIDU) is trading 9.32 times its forward-year earnings, which represents a 33.1% discount to the sector median of 13.94. Industry analysts have a consensus for the stock’s Buy rating, with a median price target of $129.67, suggesting a potential upside of almost 20.86% from current levels. As of the second quarter, 42 hedge funds owned stakes in the company valued at $1.06 billion.
2. JD.com (NASDAQ:JD)
Number of Hedge Fund Investors: 59
Forward P/E Ratio as of September 29: 10.04
JD.com (NASDAQ:JD) is one of China’s largest e-commerce companies specializing in the retail of consumer electronics, apparel, and household products. In addition to its e-commerce platform, the company also operates in various other sectors, including logistics, marketing services, and property classifieds, as well as other technology initiatives. JD.com (NASDAQ:JD) is known for its vast logistics network and strong commitment to customer service and provides a seamless shopping experience through fast delivery and a wide range of products. The company also focuses on cutting-edge technologies such as drones and AI to improve its logistics and supply chain.
JD.com (NASDAQ:JD) is investing heavily in improving its third-party merchant platform. By enhancing its third-party merchant platform, the company aims to achieve a better product mix, which will drive stronger revenue growth and improve profit margins in the future. This, in turn, will ultimately benefit the company’s long-term performance and position it for sustained success in the competitive e-commerce market. Ariel Investments stated the following regarding JD.com (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 fulfilment 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.”
JD.com (NASDAQ:JD) is trading 10.04 times it forward year earnings, which represents a 42% discount to the sector median of 17.34. The company’s earnings are expected to grow by 24.54% this year. At the end of the second quarter, 59 hedge funds held stakes in the company worth $1.33 billion. According to Insider Monkey’s hedge fund database, Alkeon Capital Management is the largest shareholder, with stakes valued at $171.47 million.
1. PDD (NASDAQ:PDD)
Number of Hedge Fund Investors: 86
Forward P/E Ratio as of September 29: 11.27
PDD Holdings (NASDAQ:PDD) is a global commerce leader with a diverse portfolio of businesses, including Pinduoduo and Temu. Pinduoduo is a comprehensive e-commerce platform offering a wide range of products, from agricultural produce and apparel to electronics and furniture. Meanwhile, Temu is an online marketplace specializing in heavily discounted consumer goods.
PDD Holdings (NASDAQ:PDD) is making significant investments in its global business. The company is streamlining supply chain efficiency by introducing customized fulfillment solutions in various markets and partnering with high-quality merchants worldwide. Additionally, it is bolstering its legal and compliance capabilities to create a secure and trustworthy shopping environment while staying ahead of the curve by researching laws and regulations in its operating markets.
Furthermore, PDD Holdings (NASDAQ:PDD) is prioritizing AI technology and operational enhancements to elevate the overall user experience. This enables the company to cater to the diverse needs and quality standards of global users, ultimately driving value for both consumers and merchants. As a result, the platform is expected to gain greater recognition and acceptance in local communities.
Notably, PDD (NASDAQ:PDD) is considered one of the most undervalued stocks to buy right now. The company’s stock is trading 11.27 times it forward year earnings, which represents an almost 35% discount to the sector median of 17.34. The company’s earnings are expected to grow by 59.73% this year. Industry analysts have a consensus Buy rating on the stock, with an average share price target of $160.87, indicating a potential upside of 17% from its current level.
As of the second quarter, 86 hedge funds held stakes in the company worth $8.10 billion. According to Insider Monkey’s hedge fund database, GQG Partners is the largest shareholder in the company, with stakes valued at $1.43 billion.
While we acknowledge the potential of PDD (NASDAQ:PDD) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PDD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure. None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
