Chinese stocks are probably not on the shortlist of many investors after the coronavirus pandemic that has devastated the economy of the country in recent months. But the huge Asian nation is showing signs of being on the road to recovery. Official statistics indicate that Chinese manufacturing activity resumed its expansion in March. And the country’s transportation industry may soon follow.
Chinese companies pose unique risks due to trade tensions and general geopolitical uncertainty. But perhaps now is the time to pick up these stocks while prices are still low. For example, here are three Chinese stocks likely to benefit from a Chinese economic rebound in April. Two of them, Trip.com Group (NASDAQ: TCOM) and China Eastern Airlines (NYSE: ZNH), are bets on the resumption of transport in China. The other, Alibaba Group (NYSE: BABA), is a bet on improving consumer sentiment in the country.
Trip.com Group is China’s answer to Expedia Groupvarious travel-related websites, including Orbitz. The company is a travel service provider specializing in ticketing, reservations and tours as well as the aggregation of hotel and transportation information. Trip started 2020 on solid foundations. Fourth-quarter 2019 revenue increased 15% (from $ 4.5 billion to $ 5.1 billion) over one year. And net income went from $ 161.7 million to $ 1 billion over the same period.
But the coronavirus pandemic has significantly eroded Trip’s short-term prospects as governments around the world have instituted travel restrictions to slow the spread of the deadly COVID-19 disease.
Trip.com underperformed the overall market in 2020, down 25.9% from the start of the year, compared to a drop of 13.4% S&P 500. But now that most of the bad news about coronaviruses seems to have its price – and the Chinese economy is coming back online – the headline is a great way to bet on a rebound. Trip CEO Jane Sun says China’s domestic travel market could return to normal in a few months. If she’s right, the stock could go up.
2. China Eastern Airlines
China Eastern Airlines is the second Chinese carrier in number of passengers, just under its rival, China Southern Airlines. The company mainly transports passengers outside its hub in Shanghai to national and international destinations such as Abu Dhabi, the United Arab Emirates, New York and Los Angeles. It should not be surprising to learn that the coronavirus pandemic has hit China Eastern stock. Shares have fallen 33.5% since the start of the year compared to a 13.4% drop in the S&P 500 over the same period.
With first-quarter profits expected on May 5, the company will likely announce significant revenue cuts due to travel bans to the United States and Europe on flights from China. But the Chinese travel industry, which accounts for the bulk of China Eastern’s sales, is already showing signs of life.
According to the China Civil Aviation Administration, the country’s aviation regulator, domestic flights in the country increased by 20.5% in March. And while China Eastern forecasts “significant uncertainty” for the whole of 2020, Asia remains one of the largest growth markets for aviation. And the downward valuation of only 0.3 times the sales of China Eastern makes the action a good way for tolerant investors at the risk of betting on a Chinese recovery.
3. Alibaba Group
For some investors, the Chinese transportation industry is currently too risky, and that’s OK. The country offers other opportunities in technology and electronic commerce. The Alibaba group is one of the most convincing. Alibaba is China’s response to Amazon with its massive e-commerce platform and forays into cloud computing and digital media. Unlike most stocks based in China, Alibaba outperformed the broader market with stocks down just 7.4% since the start of the year, compared to a 13.4% drop in the S&P 500 over the same period.
Alibaba started 2020 on a solid basis with better-than-expected third quarter results for fiscal year 2020 (Alibaba’s third quarter ends on December 31). Sales climbed 38% from $ 17.1 billion to $ 23.2 billion, and net profit increased from $ 4.5 billion to $ 7.2 billion year-over-year.
Alibaba is unique because, unlike the other companies on this list, its third fiscal quarter ends when the calendar year does. This means that the effects of the coronavirus pandemic will be reflected in its fourth quarter financial results, which are expected to be released on May 20. Alibaba did not guide for the fourth quarter, but the company’s diversified business model should help protect it from shocks from viruses and put it in place to benefit from a rebound in the Chinese economy.