In this article, we will look at the 7 Most Profitable Chinese Stocks To Invest In.
China’s Economic Growth
According to a report by the IMF, the economy of China is expected to grow 5% in 2024 and 4.5% in 2025, marking an upward revision of 0.4 percentage points from the previous April projections. This growth is largely driven by robust Q1 GDP data and recent policy measures. However, the IMF warns of potential risks on the downside, citing a prolonged and more severe-than-expected adjustment in the property sector and increasing fragmentation pressures.
In terms of inflation, the IMF forecasts a moderate increase in core inflation to 1% in 2024, with growth expected to slow down to 3.3% by 2029 due to demographic challenges and slower productivity growth. China’s economy is facing weak consumer spending due to a prolonged housing slump and high youth unemployment. In an effort to diversify revenue streams, Chinese tech firms are focusing on artificial intelligence (AI). However, there is intense global competition which limits the effectiveness of this approach.
The government needs to implement policies that boost spending and restore consumer confidence. The recent slowdown in economic growth and rising geopolitical tensions have led to a significant outflow of foreign investment, with nearly $15 billion pulled out of the country in the second quarter of 2023. Some foreign car manufacturers have also scaled back or withdrawn their investments due to the rapid shift towards electric vehicles in China. As a result, China’s balance of payments has turned negative, which could potentially result in the first annual net outflow of foreign investment since 1990.
Buy Everything Related to China, Says Billionaire David Tepper
Billionaire investor, David Tepper, founder of Appaloosa Management, has expressed an extremely bullish opinion on his investments, particularly in China. In an interview on CNBC on September 26, he stated that he is increasing his exposure to Chinese stocks, citing the country’s efforts to stimulate its economy. Tepper believes that China’s plans to inject $142 billion of capital into top state-owned banks and implement positive policies will boost the economy and lead to a surge in Chinese stocks. As a result, he is “buying everything” related to China.
Tepper’s strategy is not limited to individual Chinese stocks, as he is also investing in Chinese ETFs. He believes that these ETFs offer a convenient way to gain exposure to a basket of Chinese companies. Tepper’s bullishness on China is not without risk, as he acknowledges that there are still challenges facing the country’s economy. However, he believes that the potential rewards outweigh the risks and is willing to take on that risk.
In contrast, Tepper is less enthusiastic about the US market, citing valuation concerns. He believes that the US market is not as attractive as the Chinese market, and is therefore allocating more of his portfolio to Chinese stocks. However, he still owns significant positions in US companies.
As China navigates its economic challenges, the government will need to strike a balance between stimulating growth and addressing the issues that are hindering consumer spending and investment. However, David Tepper’s move to increase his exposure to Chinese stocks and ETFs reflects investor confidence in the country’s economic recovery and growth potential. With that in context let’s take a look at the 7 most profitable Chinese stocks to invest in.
A closeup of hands holding a steaming cup of coffee with the Shanghai skyline in the background, symbolizing the company’s presence in the People’s Republic of China.
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 40 largest companies in China by market cap. From that list, we narrowed our choices to 7 stocks with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds 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).
7 Most Profitable Chinese Stocks To Invest In
7. H World (NASDAQ:HTHT)
TTM Net Income: $559 Million
5-Year Net Income CAGR: 31.50%
Number of Hedge Fund Holders: 24
H World (NASDAQ:HTHT) is a leading player in China’s hospitality industry. The company’s business model is built around three primary strategies: leasing and owning properties, franchising, and managing hotels. By diversifying its approach, H World (NASDAQ:HTHT) is able to maintain a strong foothold in the hospitality sector while also presenting substantial growth opportunities through efficient risk management and financial investment.
The company’s diversified strategy allows it to maximize its income sources, boost brand awareness, and expand its market share at a lower upfront cost than traditional hotel ownership. As of Q1, H World (NASDAQ:HTHT) manages a network of 9,817 hotels across 18 countries. This extensive network enables the company to cater to a wide range of customers and provide a unique hospitality experience.
H World (NASDAQ:HTHT) remains committed to delivering exceptional customer experiences and continually enhancing the quality of its offerings. In the first half of 2024, the company reported a 14.1% increase in earnings to $1.6 billion, compared to the same period in the previous year. This growth was driven by a 14.3% rise in earnings to $1.30 billion.
H World Group has demonstrated impressive financial growth, with a net income of $559 million for the twelve months ending June 30, and a 5-year net income compound annual growth rate (CAGR) of 31.50%, which highlights the company’s ability to consistently deliver strong financial performance. Additionally, H World Group has attracted the attention of institutional investors, with 24 hedge funds holding stakes in the company worth $346.84 million as of the second quarter.
6. Tencent Music Entertainment (NYSE:TME)
TTM Net Income: $777 Million
5-Year Net Income CAGR: 22.74%
Number of Hedge Fund Holders: 25
Tencent Music Entertainment (NYSE:TME) is China’s leading online music entertainment platform, offering a variety of music streaming services, including QQ Music, Kugou Music, Kuwo Music, and WeSing. The company has successfully combined music streaming with social entertainment features, creating a unique user experience.
Tencent Music Entertainment (NYSE:TME) has leveraged its large user base and content partnerships to become a dominant player in China’s digital music market. China’s online music market is growing rapidly, with Tencent Music Entertainment (NYSE:TME) dominating the market with a share of over 60% in monthly active users (MAU) and over 70% in paid users. According to a report by China Insight Consultancy, China’s online music market is expected to reach $6.9 billion by 2025, driven by higher penetration rates and higher average revenue per user (ARPU).
Tencent Music Entertainment Group (NYSE:TME) has demonstrated impressive financial growth, with a 5-year net income compound annual growth rate (CAGR) of 22.74% and a net income of $777 million for the twelve months ending June 30, representing a 16.28% year-over-year increase. Financial projections by Wall Street analysts show potential earnings growth in the next few years, driven by expanding margins and improving operational efficiency.
