Even among emerging markets, only China (PGJ) is showing any positive action at all. I looked at a couple of news stories that have had a direct impact on Chinese stocks, including the addition of 14 Chinese ADRs to the MSCI Emerging Markets ETF (EEM) and the wave of Chinese ADRs that are leaving U.S. exchanges to go private or return to trading exclusively on Chinese exchanges.
Moving along to the main topic of the Webinar—Chinese consumer stocks—I began with the BAT stocks: Baidu (BIDU), Alibaba (BABA) and Tencent Holdings (TCEHY). These are the strongest competitors in the scramble for shoppers, searchers, messagers and other netizens on the Chinese Web. They all have large market caps, their stocks are liquid and they have substantial cash holdings to fund their active M&A activities. They are also frantically forming alliances and joint ventures and trying to invade as many different businesses as possible, expanding on their natural bases in search (BIDU), e-commerce (BABA) and messaging (TCEHY).
Other contenders in the Chinese retail industry include: JD.com (JD), an online retailer of authentic brand merchandise with a large (and growing) warehouse and delivery network that allows for quick delivery. LightInTheBox (LITB) isn’t really a contender, but I like its business plan. And VipShop Holdings (VIPS) is a specialist in flash sales of discounted brand merchandise. 58.com (WUBA) is a fascinating niche player with a huge database of local merchants and customers in 380 cities. It could be an attractive takeover target.
Among Chinese Web portals, NetEase (NTES) stands out as the most attractive stock, as the company’s emphasis on online games gives it a better revenue base and higher growth potential.
Among social media companies, Weibo (WB) stands out for its popularity and because it will be turning profitable in 2015. YY.com (YY) has a list of paying users that is up 50% year-over-year. It has a site with unique interactivity and has become expert in generating exclusive content from live events. (It’s also listed as one of the companies trying to delist and return to China.)
Among Chinese private education stocks, I find the best chart and growth characteristics in TAL Education (XRS), a fast-growing after-school small-class and tutoring provider with a huge presence in Beijing. Its stock has just staged a strong rally after building a long base.
One other company with excellent growth prospects is Ctrip.com (CTRP), an online travel agency that has expanded into a full-service travel provider. It has also just merged with a major rival to achieve a 70% chunk of the online travel business in China. Growth should remain strong for a long time.
Beyond that, I cautioned against buying any ETF that promised broad exposure to the Chinese market. The only real opportunity right now is in individual stocks. Stick to those and avoid Chinese index stocks that are stacked with stodgy state-owned companies.