• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

A '3-2-1' Approach to Investing in Budding Chinese Stocks

There's an opportunity for investors in a few, small speculative Chinese names. Consider playing the space this way.
By TIMOTHY COLLINS
Sep 29, 2018 | 02:00 PM EDT
Stocks quotes in this article: SPY, FXI, BABA, BIDU, YY, SINA, WB, IQ, JD, BILI, PDD, WUBA, NTES, ATHM, HUYA, NIO, SOGO, BZUN, UXIN

Repetition is the key to learning, but sometimes there is only so much you can learn before repetition becomes useless. I'll give you an example.

In early 2005, my wife gently tapped me on the shoulder to tell me that the crazy heartburn she'd been feeling was a result of what she had suspected for about a week. She was pregnant.

A week later, we headed to see her OB/GYN and received confirmation of the news. The doctor smiled and said, "Congratulations, you're pregnant."

Repetition. Confirmation.

At the first sonogram appointment, the doctor does one of those squinty, sideways looks like you might see a puppy do when hearing a strange sound for the first time and says, "Oh look, there are two babies in here."

Repetition, but with a twist.

The next three appointments can be summarized as this: Yup, you're still pregnant.

Repetition, but nothing new.

And that, my friends, basically sums up the U.S.-China Trade Wars at this stage. We aren't learning anything new although many traders continue to react that way. And for its part, Chinese stocks have greatly underperformed their U.S. counterparts since April 2015. In fact, if we go back over the past five years, we'll see the SPDR S&P 500 ETF (SPY) to iShares China Large-Cap ETF (FXI) ratio is almost twice the level of the low and we're sitting at levels last seen around 2005.

To me, this is an opportunity. We're stretched on the domestic side compared to China. If nothing more than a reversion to the mean trade, the current ratio, as seen by the chart below, indicates there may be some opportunity in a few, small speculative Chinese names.

The first reaction by most is to jump at Alibaba (BABA) , but who doesn't own Alibaba now if you wanted Chinese exposure. Next in the pecking order is Baidu (BIDU) . Again, too obvious. Others might tell you to reach for Yum! China YUMC, but this is too vague.

I'd put my speculative list into three tiers from high quality to highly volatile.

Tier 1

YY Inc. (YY)
Sina (SINA)
Weibo (WB) (Cheaper to gain exposure thru Sina)
iQIYI (IQ)
JD.com (JD)

Tier 2

Bilibili (BILI)
Pinduoduo (PDD)
58.com (WUBA)
NetEase (NTES)
Autohome (ATHM)
HUYA (HUYA)

Tier 3

Nio (NIO)
Sogou (SOGO)
Baozun (BZUN)
Uxin (UXIN)

I would consider a 3-2-1 type of approach, which includes three names from Tier 1, two names from Tier 2, and one name from Tier 3.

This commentary originally appeared on Real Money Pro on Sept. 27. Click here to learn about this dynamic market information service for active traders.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Collins was long YY, SINA, IQ, JD and HUYA.

TAGS: Investing | Stocks

More from Stocks

Lesson of the Day: One Man's 'Junk' Is Another Man's Momentum Stock

James "Rev Shark" DePorre
Feb 24, 2021 4:57 PM EST

Stock pickers are back, and they working on short squeezes again.

Here Are the 3 Scenarios I See for Rates

Tom Graff
Feb 24, 2021 4:15 PM EST

Let's see what it would take for inflation pressure to keep building and for the Fed to start hiking -- and what both would mean for investors.

Higher Interest Rates Will Boost This Blue Chip Dividend Stock

Bob Ciura
Feb 24, 2021 2:30 PM EST

Including dividends, we see the potential for 11.4% annualized returns for this stock.

There's a Green Day Coming in Apple

Mark Sebastian
Feb 24, 2021 1:56 PM EST

These calls are going to end up in the money.

Shark Bites: Using Game Theory to Trade the New Soaring Eagle SPAC

James "Rev Shark" DePorre
Feb 24, 2021 1:50 PM EST

This game being widely played right now is part of the reason it is so easy for new SPACs to keep raising money.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:36 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 2/24/2021

    SPX (Long-Term View) The 2/16 HIGH @ 3950.43 is ...
  • 08:30 AM EST GARY BERMAN

    Tuesday Morning Fibocall for 2/23/2021

    SPX (Long-Term View) The 2/16 HIGH @ 3950.43 is ...
  • 04:52 PM EST CAROLYN BORODEN

    WMT Updated

    View Chart » View in New Window » Since we vio...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login