• 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
    • Bruce Kamich
    • Doug Kass
    • 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
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Are Chinese Tech Stocks Suddenly Attractive Again?

It's an oft repeated phrase, but perhaps repeated so often because it holds some wisdom: 'Be greedy when others are fearful.'
By KEVIN CURRAN Nov 20, 2021 | 07:30 AM EST
Stocks quotes in this article: BIDU, JD, BABA, BRK.A, BRK.B, DJCO, KWEB

2021 has been a tumultuous year for Chinese tech stocks, to say the least.

Amidst successive crackdowns on outspoken CEOs as well as harsh and targeted regulation of gaming and education sectors, stocks like Tencent (TCEHY), Baidu (BIDU) , JD.com (JD) , and more of the country's tech stalwarts have erased years of gains.

This has been highlighted by the country's most famous foreign-listed stock in Alibaba (BABA) . With the dovetailing of regulatory issues and an apparently weakening consumer in China, the stock has been among the hardest hit. Accounting for a spending slump in China noted by the company in its Nov. 18 earnings call that sent shares spiraling, the stock has slid about 37% year to date.

"Economic headwinds coupled [with] intensifying market competition also affected our core commerce business in China," Alibaba CEO Daniel Zhang told analysts in the call on Thursday.

Of course, what he alludes to is a slowing GDP growth in China and an overall slowdown in consumer spending.

While not noted in the call, the crisis in Chinese real estate could well send this from a current slump to a serious crisis in consumer spending. Further, the company's coffers could be cleared out in coming years by the government in the name of "common prosperity."

That is not even to mention the monumental political risk that is posed by elevated cross-strait tensions with Taiwan or the ESG concerns associated with investing in a country governed by a repressive autocratic one-party system.

Yet, despite this seeming avalanche of adverse news likely causing many to eschew the market altogether, not all are so bearish. In fact, many top investors are eyeing an appetizing opportunity as the dust settles on regulatory crackdowns.

Attractive Entry Point

It's an oft repeated phrase, but perhaps repeated so often because it holds some wisdom: "Be greedy when others are fearful."

The quote attributed to Warren Buffett basically implores investors to keep a cool head and buy stocks when they are "on sale." In respect to Chinese stocks, this is certainly a tack taken by Buffett's Berkshire Hathaway (BRK.A) (BRK.B) partner Charlie Munger.

As Alibaba stock slumped to near its nadir, the Munger-led Daily Journal Corp. (DJCO) nearly doubled its stake in Alibaba in the third quarter of this year, moving its stake north of 300,000 shares of ADRs (American Depository Receipts). Prior to Thursday's slide for the stock, it would have seemed he picked precisely the proper entry point.

As the stock once again reaches the levels it saw when Munger made his move in the third quarter, perhaps another opportunity to buy at a discount presents itself. Further, the opportunity might not be relegated to only Alibaba as many of its large-cap tech peers remain at similarly depressed levels.

"We still see large-cap Chinese technology companies as an opportunity for the next 10 years," Adam Coons, Portfolio Manager at Winthrop Capital Management told Real Money. "Most of these companies have sound business models, strong free cash flow, and are relatively inexpensive relative to U.S. tech firms."

He noted that the discount to U.S. firms is a major benefit, as continued growth in China is being discounted as compared to the soaring valuations in U.S. tech.

Proceed With Caution

That said, Coons was not universally bullish and noted that investors approaching the market must be careful to avoid the firms most likely to be targeted by future regulation.

"The companies that will continue to be most vulnerable will be those that have ties to financial markets, such as Alibaba and ANT," he explained. "China controls its economy through its financial markets and the party will likely maintain a tight grip of control over this segment. We continue to invest into China's technology stocks through ETF's, such as [KraneShares CSI China Internet ETF] (KWEB) , and individual stocks such as Tencent, Baidu, and JD.com."

Sylvia Jablonski Kampaktsis, co-founder and CIO of Defiance ETFs, seconded the idea that opportunity exists, but only for those shrewd enough to avoid potential pitfalls.

"The companies that pose the greatest growth potential in the fintech, social media, online education, gaming, ecommerce spaces, are taking the biggest hit due to regulations," she noted. "The Chinese economy remains strong and is a solid country with healthy GDP growth (though slower than expected), solid exports and growth potential."

As such, she surmised that there is plenty of opportunity, but that it hinges very much on the action of the government in terms of handling these sectors. For Kampaktsis, the main risks are regulatory and political, therefore investors should attempt to target sectors that are somewhat insulated in this regard.

"Chinese stocks are at attractive levels," she clarified. "However the issue is that the rebound will be very slow, as there is too much discomfort on the table around regulatory concerns, and restrictive measures for these companies."

In particular, Kampaktsis noted that ecommerce, gaming, online education and fintech are the most vulnerable to further regulation given the existing track record of government crackdowns.

Overall, Chinese stocks are not likely to be on the radar of risk-averse investors. However, given the seemingly unending spate of bad news emanating from the market, a strong case can certainly be made for a contrarian buy-in on some of the nation's biggest tech names.

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, Curran had no positions in any securities mentioned.

TAGS: Regulation | Investing | Markets | Politics | Stocks | Trading | China | Warren Buffett

More from Stocks

Bulls Are Still Banking on This Market

James "Rev Shark" DePorre
Mar 31, 2023 4:43 PM EDT

Ironically the worst banking crisis since 2008-2009 has been a positive market catalyst.

Could Constellation Brands Be Facing Further Declines?

Bruce Kamich
Mar 31, 2023 1:56 PM EDT

What's not yet known is if the stock is recession resistant.

IonQ Stock Has Taken a Quantum Leap

Bruce Kamich
Mar 31, 2023 1:18 PM EDT

Here's where my price targets are now.

Shares of Cintas Are Uniformly Crisp

Bruce Kamich
Mar 31, 2023 11:05 AM EDT

I see no technical reason yet to turn neutral or even bearish.

Here's Why I'm Investing in This Hawaiian Bank

Bret Jensen
Mar 31, 2023 10:10 AM EDT

For one, its deposit base is stickier than most.

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

  • 08:21 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How a Trader Becomes a Money Manager
  • 04:00 PM EDT CHRIS VERSACE

    AAP Podcast: This Solar Company Is a Head-Turner

    Listen to my interview with Brian Roth, CEO of sol...
  • 01:56 PM EDT PETER TCHIR

    Very Cautious

    I am very cautious here. I don't like how the c...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 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