top of page

Chinese stocks have been doing very bad lately. This is an opportunity for all of us to buy into Hong Kong/Shanghai listed Chinese stocks.

We like to use the top-down approach when it comes to investing, riding on intermediate trades and long-term investments. If you've been paying any attention to world politics, you would know that China has been closing off its economy to the capital of foreign powers.


This is not merely a "pointless" or "self-harming" move as many commentators put it. The government's goal is to limit the amount of influence that foreign powers have over their most impactful and large companies. This especially is manifested in the regulatory policies regarding data in the country. It is also the reason that American-IPOed companies are coming under scrutiny from China - they are vulnerable to American judicial prosecutors and may be required to submit data or change their company.


For this reason, right now foreign-listed Chinese company's are a no-go for us - we are anticipating a divestment from US-based firms - which was largely the intention for the Chinese government in the first place.


However, this crash also dragged down the mainland and hong-kong listed stocks. As western investors also pull out of these stocks, the Chinese government is now on good terms with them. This gives us an opportunity - these stocks are now severely underpriced.


In particular, 3 stocks have come to mind: Alibaba, and TenCent.


Alibaba - HKG 9988

As everyone knows, Jack Ma and his various operations such as Ant-Group are being investigated right now. However, this is mainly political and will hardly have an effect on the Alibaba corporation itself. Jack Ma had too many connections with the "Jiang Faction" politicians currently being ousted in the CCP. He was too extravagant with his parties and overly critical with his claims against the Chinese government and regulatory bodies.


However, he has already stepped down as CEO two years ago, and is hardly involved in the day-to day operations either way. He is still in contact with many of this subordinates, still being able to take part in the most important business decisions.


Many, including me, are reliant on Alibaba in China. All of us get our goods from Alibaba or Jd.com, their main competitor. Alibaba is more about connecting sellers to buyers, while JD had a more similar business model to Amazon, investing in faster distribution channels. However, we have reached a saturation point where delivery speed hardly matters anymore - getting something tomorrow versus getting something today makes very little difference. For this reason, based on personal experience, the earning power will remain the same over the next years. Having the government crack down on the company will hardly affect their bread-and butter business on selling goods.


Financial Analysis


Consistent revenue growth with good forward-looking earning power sustainability. Great cash flow.



High amount of current assets, very low debt.


Very competitive financial value compared to other competitors such as JD.com.


On track to have a very good year in earnings, unlikely to stop anytime soon.




They are currently very dominant in marketing, out-competing companies like TenCent and Jd.com. Very diverse revenue flow, unlikely to fade out anytime soon.


Is now the time to invest?



The technical are looking very attractive, the stock has had many reactions upon the 30 RSI line, and is currently likely in the fifth Elliot wave. Options are not recommended, likely a very high theta due to volatility and implied volatility. Major resistance at price level. Looking like a very attractive investment right now.


Big Caveat - Current Situation

Though the price might seem attractive at the moment, it is better to ease into the stock. There is too much uncertainty right now. Actor Zhao Wei had many connections with Alibaba, and is being prosecuted. Same with her fellow actor, Zhang Zhehan. Many Hangzhou(location of Alibaba headquarters) officials are being prosecuted for corruption with Alibaba and accepting bribes. Note that a dinner of more than 200$ in china with a government official is considered a bribe. The government has the choice to turn a blind eye, but when they don't under the circumstance of political tension, they can prosecute whoever they want.



Tencent HKG 700


Tencent is a company that I am more comfortable to invest in. The same top-down political approach could be taken on TenCent.


However, there are a few factors in this company that makes me more comfortable in investing in this company. First, there are less scandals in this company. Ma Huateng(CEO) is not nearly as flamboyant as Jack Ma, and quietly stepped down(likely at request of Chinese government) a year ago.


The WeChat pay system is more convenient than the ali-pay system, attracting many more users. Many of my relatives are shifting to WeChat-pay because of it's ability to have everything on the app, including services like MeiTuan(delivery) and Taxi calling. Although they have less freedom with using this cash now due to government regulations, things like commissions that flow through the system will contribute to their consistent revenue.


Furthermore, I am extremely confident in their gaming investments. They own the two biggest games right now: Valorant and League of Legends. As a player of both games, I can assure you that they are very addicting and are not going away anytime soon. People spend a lot of money on league of legends to get skins - they have a very consistent revenue stream there. Likely 10 dollars every 3-4 months.


Advertising revenue is going up. Although TenCent is falling behind companies like alibaba, I am confident that with their influence on WeChat, advertising revenue has much growth potential.


All in all, TenCent has an extremely diverse revenue stream, signifying that they are likely to maintain their earnings power over the next years. They are extremely dominant as they have billions or trillions of dollars in their WeChat-pay system, and have a single company monopoly on social media and TV-streaming.


Fundamentals


Aside from the consistent revenue growth which will not stop anytime soon(due to advertising and increasing users on WeChat pay and gaming.


They have very little debt compared to current assets, very low risk of bankrupcy.

They have a very attractive PE at 20(extremely uncommon for a dominant, fast growing tech company).


Technical

The technical look a little bit volatile with a downwards descending triangle. We are looking to ease our way in, and buy if it breaks out of that triangle. Weekly RSI looking oversold, signaling a great long term investment, with consistent reactions along this indicator, as MACD histogram is diverging in a positive direction.





Comments


bottom of page