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Things might be starting to turn around for Chinese stocks. To start, the full-scale COVID-19 lockdowns in Shanghai and Beijing are finally being lifted. At the same time, regulatory tightening in the tech sector is also on the decline. With both of these events in mind, investors are starting to re-examine Chinese stocks.

If you are new to overseas investing, we will take a quick look at how it works and whether or not it’s safe. If investing in foreign companies is nothing new to you then feel free to skip ahead to read about my three favorite Chinese stocks.

Are Chinese Stocks Safe?

When it comes to investing, hardly anything is 100% safe. There are plenty of examples of corporate misconduct in practically every country. In the U.S., Enron is the classic example. More recently, you could also include WeWork. Both of these companies mislead investors, reached sky-high valuations, and came crashing back down.

With this in mind, it’s not quite fair to declare all Chinese stocks as “unsafe.” But, it’s also worth noting that Chinese companies play by a different set of rules.

To start, Chinese companies work basically hand-in-hand with the Chinese government. Pretty much all major Chinese companies will have a government official on the Board of Directors. This way, the government can closely regulate and influence the company’s actions. These officials mainly want to make sure that companies are operating in the best interest of the Party. The government also has very strict rules that all companies must follow. This is why it’s notoriously difficult for U.S. companies to operate in China.

On top of that, Chinese companies sometimes even use a different accounting system. This can make it more difficult for investor to interpret financial results.

Again, these factors don’t mean that buying Chinese stocks is a bad idea. These are all just things to keep in mind as potential risk factors. With that said, let’s examine three Chinese stocks that are separating themselves from the pack.

No. 3 Nio (NYSE: NIO)

The biggest complaints about electric vehicles are usually related to charging them. After all, not every household is designed to fit a charging station. You might live in a house that has no garage or a high-rise with no parking at all. Even once you find a station, charging your EV can take several hours depending on a few factors. This can be quite an inconvenience if you are on a long journey. Nio is an electric car manufacturer that’s working to make charging easier for electric vehicle owners.

What sets Nio apart from other electric car companies is that it offers four different ways to charge.

1. Traditional charging stations: EV owners can pull up, plug-in, and charge.
2. Power Swap: A patented technology where Nio swaps an exhausted battery for a fully-charged one.
3. Power Mobile charging: A roaming van that carriers a charging station. Through Nio’s app, you can flag down the van to come and charge your car.
4. 24/7 charging valet: A Nio employee collects your car for you, charges it at a station, and returns it.

It’s reassuring to see Nio actively trying to solve one of the EV industry’s biggest problems. If it is successful, it’s easy to see Nio becoming one of the more popular Chinese stocks. This is especially true once you consider that Shanghai is no longer under a COVID-19 lockdown.

No. 2 Pinduoduo (Nasdaq: PDD)

Pinduoduo is a digital marketplace that connects farmers with consumers across China. But, it’s not like most regular online marketplaces. Pinduoduo has separated itself by blending online shopping with social media.

On Pinduoduo, you scroll the marketplace as if it were a social media feed. While doing so, the app’s algorithm recommends products to you. This helps you discover new products that you might not have known about. You can also see what your friends/followers are buying. In this sense, it makes online shopping much more of a social experience (even though it’s all still digital). Investors usually refer to this style as “social commerce.”

Social commerce is incredibly sticky. People have a naturally tendency to seek out the opinions of others. If you see that all your friends are buying a new product, you’ll want to try it out for yourself. Additionally, after you make a purchase the first thing that you naturally want to do is share it with your friends. Pinduoduo makes all of this incredibly easy. It even offers you a discount for shopping as a group.

Pinduoduo also partners with local merchants to deliver to local shoppers. This allows them to save money on delivery costs as well as offer next-day product pickup. But, as popular as Pinduoduo is, it still usually falls behind the goliath of eCommerce Chinese stocks.

Chinese Stocks to Buy No. 1 Alibaba (NYSE: BABA)

Most investors typically refer to Alibaba as the Amazon of China. The reason why is fairly simple. Alibaba is China’s biggest eCommerce company. In fact, Alibaba claims to have over 1.3 billion active annual consumers. On the flip side, Amazon reportedly has over 200 million Amazon Prime members. Granted, comparing customers to Prime members isn’t quite an apples-to-apples comparison. But it gives you a sense of just how big Alibaba is when compared to Amazon.

Alibaba is also currently one of the world’s largest companies by total sales volume. It is currently hovering around No. 30 on Forbes, with sales of $130 billion. This puts it ahead of Meta Platforms, Morgan Stanley and Pfizer.

Alibaba has been an investor favorite for years. However, the stock has gotten sold off and is down over 50% in 2022. If you are bullish on the Chinese economy and digital commerce then this could be a great time to buy into Alibaba.

Another thing to note is that Alibaba owns the largest number of blockchain patents (212 in total). Clearly, Alibaba views cryptocurrency and blockchain products as a big part of its future.

I hope you’ve found this article on Chinese stocks to be valuable! Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence.

The post Are Chinese Stocks Safe to Buy? Which Ones are Best? appeared first on Investment U.

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By: Teddy Stavetski
Title: Are Chinese Stocks Safe to Buy? Which Ones are Best?
Sourced From: investmentu.com/chinese-stocks/
Published Date: Tue, 07 Jun 2022 14:49:20 +0000

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