Hedge Funds are Selling These 5 Chinese Stocks Amid Crackdowns

1. Baidu, Inc. (NASDAQ:BIDU)

Number of Hedge Fund Holders in Q2: 59   

Number of Hedge Fund Holders in Q1: 89 

Baidu, Inc. (NASDAQ:BIDU) is ranked first on our list of 10 Chinese stocks hedge funds are selling amid crackdowns. The firm provides a range of internet-related services, including search, across China. It operates from Beijing. 

On August 13, investment advisory Oppenheimer maintained an Outperform rating on Baidu, Inc. (NASDAQ:BIDU) stock but lowered the price target to $320 from $355, underlining that the COVID-19 cases in China were impacting advertising budgets for the firm. 

At the end of the second quarter of 2021, 59 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Baidu, Inc. (NASDAQ:BIDU), down from 89 in the preceding quarter worth $6.5 billion.

In its Q1 2021 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and Baidu, Inc. (NASDAQ:BIDU) was one of them. Here is what the fund said:

“We have also fully exited our stake in Baidu, following their outstanding performance during the period and their lower relative upside potential compared to other investment alternatives, which we will discuss below.

The Chinese technology platform company Baidu has also been held in the portfolios managed by Alejandro, Miguel and myself for several years. During this period, we have seen very high volatility in its share price, which we have taken advantage of to make significant rebalancing moves in our position (in fact, we even sold our entire position once, when we thought the stock’s upside potential was exhausted). After several years of instability, market sentiment turned very positive, putting an end to the historical advertising problems in the healthcare sector, the divestments in O2O (Online-to-Offline) businesses that continued to weigh on the company’s margins, the IPO of part of the iQiyi streaming business (which hid Baidu’s underlying cash generation capacity) and the tough competition from other industry giants such as Tencent and Alibaba, as well as the entry of new players with disruptive business models (ByteDance). At the same time, the company’s recent commitment to electric vehicles contributed even more to this change of narrative. Baidu’s share price rose almost fourfold from the March 2020 lows to all-time highs and reached a valuation where the margin of safety, in our view, was too narrow.”

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