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3 stocks that will benefit the most from China’s reopening

This is the best time for investors to look for Chinese stocks to buy, as the country begins to fully reopen. Many Chinese businesses were hit hard last year due to strict zero-COVID policies, which drastically reduced domestic demand. Meanwhile, quarantine requirements for foreigners meant investors weren’t so keen on visiting and investing in China.

However, China began phasing out its zero COVID policy in December, and businesses are slowly bouncing back. The country’s massive population of 1.4 billion and a healthy (albeit slowing) economic growth rate means these companies have excellent long-term potential.

With that in mind, here are three actions that will make the most of this policy shift.

BABAAli Baba$81.67

JD.com (JD)

Source: test / Shutterstock.com

JD.com (NASDAQ: J.D.) is among China’s leading e-commerce companies, a massive industry in China. The estimated revenue of this industry is $1.487 trillion in 2023 and is expected to reach $2.375 trillion with a CAGR of 12.4% by 2027. The US e-commerce industry is expected to top $1 trillion This year.

However, JD stock continues to trade low, due to multiple headwinds. First of all, the perception of the Chinese market remains gloomy. E-commerce retail sales are starting to show signs of slowing down, and it is by far JD’s largest segment in terms of revenue, providing 930 billion out of CNY 1.04 trillion in total net sales.

Despite these headwinds, JD is poised for a significant rebound as China reopens. The company has many segments, such as JD Health, JD Industrials, JD Property, and JD Logistics, with an extensive network of warehouses integrated into its operations. The addressable market here is in the trillions, making buying this significantly undervalued stock at these levels a very compelling proposition.

Trip.com (TCOM)

A photo of an excited woman on the back of a bicycle that a man is riding.

Source: OPOLJA / Shutterstock.com

Speaking of Chinese stocks to buy as China reopens, Trip.com (NASDAQ:TCOM) must be on this list. The stock has recently (and deservedly) surged on the reopening of tailwinds, and there’s likely more potential on the horizon as the Chinese ramp up travel.

On the one hand, Trip.com enjoys lower rates than its competitors, giving it an advantage in terms of customer retention in its main Chinese market. As a result, it’s no surprise to see that the company’s shares have trended higher since China announced that it would once again allow its citizens to process passports again on Jan. 8. After nearly two years of lockdowns and restrictions, the move sparked a surge in demand for outbound travel from Chinese tourists eager to resume outbound travel.

According to data from Trip.com, between December 26 and January 5, interest in flights departing from mainland China increased by 83% compared to the previous two weeks. The most popular destinations were Singapore, Thailand, Japan, South Korea and Malaysia. Trip.com also reported strong bookings for domestic travel during the Lunar New Year holiday in January.

Trip.com’s financial results also reflect its recovery from the crisis caused by zero COVID policies. In the fourth quarter of 2022, “the company’s net sales for the fourth quarter of 2022 decreased 27% compared to the prior quarter, primarily due to the resurgence of COVID-19 infections in certain regions of China and seasonality in winter”. However, important favorable factors remain, such as airfare and hotel bookings abroad, which increased by 200% and 140%, respectively, year-on-year.

So, I think these trends will translate into a better 2023 for the company. TCOM stock may not have the cheapest valuation, but its long-term upside potential remains robust.

Alibaba (BABA)

Alibaba Group head office sign located in Hangzhou China BABA stock.

Source: Kevin Chen Photography / Shutterstock.com

Ali Baba (NYSE:BABA) is another giant among Chinese e-commerce stocks to buy. The stock has slipped more than 7% below its 2022 close, continuing to trade at favorable levels despite an increasingly optimistic outlook.

In its December quarter report, the company’s adjusted EBITDA increased 16% year-on-year to $7.54 billion, and the company increased free cash flow 15% year-on-year. This is despite a marginal increase in revenue of 2%, signaling a substantial expansion in margins.

As I discussed with JD, Alibaba is another big name in e-commerce that should see its stock price recover. This current entry point looks particularly compelling, considering its forward price-to-earnings ratio of 8.9x is ranked higher than 82.76% of its peers. As a result, Gurufocus notes the stock is “significantly undervalued” as tailwinds build.

At the date of publication, Omor Ibne Ehsan did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Omor Ibne Ehsan is a writer at InvestorPlace. He is also an active contributor to a variety of finance and crypto related websites. He has a solid background in economics and finance and is a self-taught investor. You can follow him on LinkedIn.


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