Considering the slowdown in the world’s second-largest economy, it’s probably the right time to think about some Chinese stocks to sell.
China barely escaped contraction during the second quarter as consumer and manufacturing activity slowed down in the face of repeated lockdowns. Retail and industrial sales came in weaker-than-expected, while youth unemployment rates hit almost 20%. Moreover, growth during the second half of this year is likely to be severely affected by China’s zero-Covid strategy.
Furthermore, delisting Chinese stocks from U.S. markets has been a hot topic in the past couple of years. However, after both nations recently agreed on an audit deal, the consensus is that the threat of delisting is unlikely to come up again.
Additionally, Goldman Sachs, one of the leading financial firms worldwide, states that markets still believe there’s a 50% chance of Chinese businesses being delisted from U.S. stock exchanges. Having said that, let’s look at seven Chinese stocks to sell.
| TCEHY | Tencent | $41.18 |
| JD | JD.com | $63.11 |
| SOS | SOS Ltd | $5.75 |
| LGFRY | Longfor Group | $31.83 |
| PNGAY | Ping An Insurance | $11.73 |
| HCM | Hutchmed | $13.03 |
| BGNE | BeiGene | $171.10 |
Tencent (TCEHY)
Tech giant Tencent (OTCMKTS:TCEHY) is one of the leading multimedia companies in the world. Over the years, it’s been one of the strongest wealth compounders, with an average return of over 550% in the last decade. Its strong returns were driven by its incredible operating performance generating over 30% growth on average over the past five years.
However, recent market headwinds have significantly slowed down its performance and made it among one of the Chinese stocks to sell.
In the past four quarters, its results lagged well behind analyst expectations. In its second quarter, revenues dropped 3.1% from the prior-year period. Considering revenue growth was flat in the first quarter, the top-line figure was remarkably disappointing.
Recent performances have been affected by the slowdown in sales from its gaming sector and the drop in advertising income. Lower advertising income from online education and internet service business amidst the government crackdown also weighed down results.
Additionally, the advertising sector’s regulatory changes have further intensified the pressure on its top and bottom line. Hence, its attractiveness in the near term at least is highly questionable.
JD.com (JD)
Chinese eCommerce giant JD.com (NASDAQ:JD) has had a rough few quarters of late.
Its bear case hinges on the fact that it faces substantial macro and competitive headwinds and some major regulatory challenges. Its growth rates have slowed down considerably amidst the tough operating conditions, making it one of the slow-growing Chinese stocks to sell now.
Its annual active customer count has risen 9% from the same period last year to roughly 581 million, while it’s core retail business grew by just 4%.
These results pale compared to the double-digit it generated over the past year. The results were doubly disappointing because they included its annual 618 Grand Promotion sale.
JD blames the coronavirus-led disruptions and macro headwinds for its lackluster results. Analysts expect sales to grow by just 3.6% this year, compared to a whopping 28% growth last year.
SOS Ltd (SOS)
Shares of popular crypto mining enterprise SOS Ltd (NYSE:SOS) tanked during the ongoing crypto winter.
SOS stock shed close to 100% in the past year, trading close to its all-time low. The company came to light after it acquired over 15,000 mining rigs and became a crypto mining firm early last year. However, it seems to lack a clear vision for its future and remains exposed to the volatility of the crypto market.
Beijing hasn’t made things any easier for SOS stock. Last year, it banned cryptocurrencies entirely on two different occasions. The first was when it disallowed financial forms from doing transactions in crypto.
Later in September, it banned crypto mining and cryptocurrencies overall. Therefore, it remains a speculative play at best and is a stock that you should avoid, given the circumstances.
Longfor Group (LGFRY)
Longfor Group (OTCMKTS:LGFRY) is a Chinese company that is involved in property development, management, and investment.
The firm has benefitted over the years from the meteoric growth in the Chinese economy, posting substantial growth numbers.
Its near-term outlook looks murky, though, especially considering the slowdown in the domestic market. I have to side with my colleague Josh Enomoto in pointing out the company’s massive risk, with China storing roughly 70% of its wealth in the real estate market.
Additionally, its liquidity positioning is a major cause for concern, with a debt balance that comfortably dwarfs its cash equivalents. Free cash flows dropped 19.6% last year, and you’d expect more of the same this year. Those salivating at its dividend yield should know that their dividend payouts won’t last for long with a dwindling cash flow balance.
Ping An Insurance (PNGAY)
Ping An Insurance (OTCMKTS:PNGAY) has consistently performed over the years, but the unprecedented economic conditions pose a massive challenge.
Its growth ahead is linked to the recovery rates in China’s property industry and the trajectory of inflation across China. Though it’s done relatively well despite the economic pressures, the threat of higher inflation rates remains a thorn in its side.
Inflation raises the cost of insurance payouts and the real value of premiums collected in earlier periods. Moreover, the slump in the Chinese housing market intensified during the second quarter due to lockdowns which hit disposable incomes.
Also, the country’s inflation rates reached a 2-year high in July, with a 20% increase in pork prices. Hence, it’s a bumpy road ahead for PNGAY stock.
Hutchmed (HCM)
Hutchmed (NASDAQ:HCM) is a biotechnology firm developing a cancer drug targeting the Chinese market. I
t raised a massive $600 million in its IPO last year. However, its stock has been hammering over the past several months with the risk-off sentiment in the market.
Last year, its research and development expenses were at a massive $299 million, with negative margins. Moreover, it lost $328 million despite growing sales by 56%.
Its losses are likely to persist unless it makes significant breakthroughs in its cancer research. Till then, shareholder dilution, growing losses, and a dwindling cash balance will be a regular feature of its results.
Additionally, the stock was also part of a list that the U.S. Securities and Exchange Commission (SEC) released a few months ago, covering stocks that could potentially face delisting.
BeiGene (BGNE)
BeiGene (NASDAQ:BGNE) is an established biotech firm that produces and markets cancer treatment medicines.
It currently has three approved cancer medicines that have exhibited robust sales growth in recent quarters.
Moreover, the firm also has a strong drug pipeline, an international team, and a global focus that will likely pay dividends down the road.
Particularly, its BRUNKINSA drug, its blood cancer treatment drug, has grown at an impressive pace of late. Global drug sales came in at $128.7 million for its cancer drug, an enormous increase from $42.4 million last year.
Additionally, sales have increased by 127.7% from the prior year and beat estimates by $30.5 million during the second quarter. Though it’s perhaps the most promising Chinese stock of the lot, it trades at a nosebleed valuation of over 10 times forward sales. Therefore it’s best to wait for a better entry point.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines