Below you can see the top 5 Chinese stocks among hedge funds. For a detailed discussion of why you should be investing in Chinese stocks and a more comprehensive list, please see 10 Best Chinese Stocks To Buy Now.
5. Baidu (NASDAQ: BIDU)
Number of hedge funds: 43
Total value of hedge fund holdings: $2.04 billion
You might have already heard of Baidu, the company called “the Chinese Google” by many. Just like its western alternative, Baidu provides internet, mapping, AI and search engine services.
Baidu has recently experienced a slight dip in hedge fund sentiment, losing 6 funds worth of investment. Currently it can be found on 43 hedge fun portfolios while this number in this year’s first quarter was 49. It’s worth mentioning that Jack Woodruff’s Candlestick Capital Management cut the biggest position of the 750 funds watched by Insider Monkey, comprising close to $39.5 million in stock.
GDS Investments talked about Baidu in its 2019 Q2 investor letter. Here is what they said:
“With China on the mind, we turn to Chinese internet search firm Baidu, Inc. (NASDAQ: BIDU). At a price of approximately $115.00 per share, the company’s stock is at a 6-year low after it reported its first ever publicly-traded quarterly loss.
Interestingly, that loss is largely attributable to one factor: the company’s higher-than-normal operating costs during the first quarter when Baidu served as the main sponsor of the 2019 CCTV Chinese New Year Gala. In terms of television viewership, that gala is something like producing ten Super Bowl-level events all at one time. In a win for the company, though, and despite the high costs it incurred, Baidu doubled its daily active users. That, of course, should lead to better top-line results in the future.
To the extent other factors influenced the unexpected weakness in Baidu’s bottom-line results we can point to the company’s 58% ownership in iQIYI, Inc. (NASDAQ: IQ), a Netflix-like on-demand video streaming service and 19% ownership of Ctrip (NASDAQ: CTRIP). Collectively these two holdings comprise roughly 30% of BIDU’s current market capitalization.
With clear leadership in search, video streaming, AI and autonomous vehicle technology, Baidu is one the best and cheapest ways to gain access to these emerging growth technologies. Though the YTD performance of this company is disappointing, we remain optimistic about its long-term prospects.”
4. NetEase Com Inc (NASDAQ: NTES)
Number of hedge funds: 45
Total value of hedge fund holdings: $3.66 billion
NetEase, Inc. is a Chinese internet technology company providing online services centered on content, community, communications and commerce. Aside from that, NetEase has taken over a good portion of the gaming market in recent years.
By the end of last quarter, NetEase was losing investor interest but since then it has bumped up to 45 investing hedge funds from 38. The all time high number for this company is 49. Jim Simons’ Renaissance Technologies is the top hedge fund investor for this company with $536 million in shares.
3. GDS Holdings Ltd. (NASDAQ: GDS)
Number of hedge funds: 46
Total value of hedge fund holdings: $2.71 billion
GDS provides cutting edge datacenter solutions for the Chinese tech market. This year marks a period of continuous rapid growth, having increased its net revenue by 43.0% year-over-year to $224.6 million in the third quarter. In the end of Q3, with an entire quarter to go, GDS had already exceeded its organic sales performance for the whole of last year.
Chase Coleman’s Tiger Global Management is the top hedge fund for this stock with $4 billion in shares. Baron Asset Fund laid the bullish thesis in GDS shares in their Q1 investor letter:
“In the most recent quarter, we acquired shares of GDS Holdings Limited, the leading data center developer and operator in China serving the premier Chinese cloud service, e-commerce, social media/gaming, and internet players. Although we have not invested in many foreign-based companies, we believe that GDS represents a compelling opportunity. Its business shares many similarities with Equinix, Inc., a U.S.- based data center operator that has been a profitable long-term investment for the Fund. In addition, our real estate research team has met extensively with GDS management over the course of the last few years and has built increased confidence in the team’s growth aspirations and its ability to successfully execute them.
We believe that the Chinese data center industry remains in the earlier stages of its growth curve, and we believe it will experience one of the fastest multi-year growth rates globally as the Chinese government continues to support the rapid rollout of 5G connectivity. GDS’s current and future data centers support the critical IT infrastructure that empowers cloud adoption and enables numerous consumer and business applications. In addition to experiencing robust organic growth, GDS has accelerated its growth runway through select M&A. These acquisitions have allowed the company to obtain additional capacity in supply constrained markets at attractive prices. In addition, GDS has supplemented its dense urban strategy with a “campus strategy,” whereby it secures additional supplies of land and power on the outskirts of cities with minimal capital committed.
To provide some perspective on GDS’s growth rate, it signs more “bookings” in a single quarter than many global data center companies sign over the course of a year. Lastly, after two well received capital raises in 2019, GDS remains well funded with ample cash on its balance sheet to support multiple years of accelerated growth. GDS also has several deep-pocketed backers, including the Singaporean government’s investment fund, that have remained supportive of GDS’s growth plans and have participated in several of GDS’s capital raises. We believe there are many similarities to our other data center investments–GDS is earlier on its growth curve but growing at a much faster clip. We see a path for GDS to nearly triple its cash flow over the next few years, and we see a path to double our investment over that timeframe.”
2. JD.Com Inc (NASDAQ: JD)
Number of hedge funds: 85
Total value of hedge fund holdings: $13.57 billion
JD is one of the biggest B2C e-commerce service providers in China and in the world in general. It is one of the main competitors to this list’s first spot (but more about that later).
Among these funds, Tiger Global Management LLC held the most valuable stake in the company, which was worth $4 billion at the end of the third quarter. On the second spot was D1 Capital Partners which amassed $1620.2 million worth of shares.
Third Point talked about both JD and Alibaba (BABA) in its Q2 investor letter:
“During the quarter, we took advantage of jitters about China’s relationships with Hong Kong and the U.S. that created an air pocket in trading of Chinese‐related shares to establish new positions in e‐commerce leaders Alibaba and JD.com. As we have articulated in prior letters3, our outlook for Alibaba and the broader Chinese e‐commerce market is bright. We believe online gross merchandise value (“GMV”) will grow at a mid‐teens CAGR over the next five years, propelled by both (1) rising consumption per capita, as the Chinese retail market is equal in size to the U.S. despite four times as many consumers, and (2)increased penetration of retail by online, a trend which we believe has been structurally accelerated by the COVID‐ 19 pandemic.
As the e‐commerce market matures, we believe Alibaba & JD will leverage scale and growing repositories of transaction data to increase monetization of their platforms through targeted advertising to improve revenue yields (revenues as a percentage of GMV) from a starting point of less than 4% today. As a point of comparison, brick‐and‐mortar retail store rent expenses in China are greater than 10% of sales on average, which provides a significant umbrella for online marketplaces to take a greater share of GMV through a combination of commission and advertising spending as online retailer cost structures converge with brick‐ and‐mortar retail.
Finally, we continue to be excited about the latent potential in some of Alibaba’s businesses beyond the core e‐commerce marketplaces – particularly the cloud computing business, Aliyun. China’s cloud computing industry remains nascent but is growing nearly 3x faster than its developed market counterparts through a combination of rising IT intensity, rapid cloud penetration, and a gradual moderation in software piracy. Within that market, Aliyun is increasingly dominant (with nearly 50% market share) and will generate dramatic profit growth as margins expand with scale. As one reference point, Aliyun today resembles Amazon’s AWS business five years ago; this is an encouraging comparison given that today, AWS’ operating profits (and estimated enterprise value) exceed Alibaba’s business in its entirety. Ant Financial – in which Alibaba holds a ~30% stake that is worth roughly $70 billion – has announced its intention to go public later this year. Alibaba shares will benefit further should they become accessible to mainland Chinese investors through inclusion in the Southbound Connect.”
1. AliBaba Group Holding Limited (NYSE: BABA)
Number of hedge funds: 166
Total value of hedge fund holdings: $28.84 billion
Alibaba Group Holdings Limited is the largest retailer and e-commerce company in China. Alibaba operates some of the largest shopping platforms like Taobao and Tmall.
There are very few people, especially in the investing world who haven’t heard of AliBaba. In the Q3 2020 Investor Letter, Baron Opportunity Fund highlighted a few stocks and BABA is one of them. Year-to-date, Alibaba stock gained 24.9% and on December 10th it had a closing price of $264.87.
See also: Want to Buy Alibaba (BABA) Stock? Here’s What You Need to Know
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Disclosure: None.
