It’s been a rocky few years for the Chinese economy. The country has faced extended lockdowns and restrictions due to the pandemic. And many companies have lowered their reliance on Chinese manufacturing firms as economic activity is increasingly returning to North America with the reshoring movement.
For the past couple of years, China has reported by-and-large disappointing economic data. There are concerns with its real estate and banking market, and geopolitical tensions have mounted as well.
All this to say that it may seem contrarian to be looking for Chinese comeback stocks to buy right now. But often, the best purchases are made when the crowd has totally given up on an idea. With sentiment on Chinese equities near rock bottom, this is the time to start positioning for the recovery.
Tencent Holdings (TCEHY)
Tencent Holdings (OTCMKTS:TCEHY) is a Chinese conglomerate company. It owns a vast array of businesses, most of which are in the technology space. It has both business-focused products such as cloud computing along with a vast array of media and consumer products.
Tencent is perhaps best known for its video game investments. Right now, the gaming industry is in a slump and Tencent’s properties are no exception; subsidiary Riot Games just laid off more than 500 people for example.
This speaks to a broader retrenchment as Tencent trims costs and is focused on maintaining profitability during this challenging stretch. On the other side of this downturn, however, Tencent’s dazzling collection of technology and media assets should help make TCEHY stock a big winner in the Chinese stock comeback.
For now, Tencent shares are down by nearly two-thirds from their all-time highs. This has pushed shares to less than 16 times forward earnings, and the stock offers a healthy dividend yield as well.
JD.com (JD)
Most global tech and e-commerce stocks have soared over the past year. JD.com (NASDAQ:JD), by contrast, has almost entirely missed out in the recovery.
JD shares are going for around $25 each, which is more than 75% below the highs set back during the pandemic-era online shopping boom. Furthermore, JD stock is trading back around its IPO price from a decade ago.
The funny thing, though, is that JD is continuing to grow. The company put up record results in 2023, and analysts expect the company to continue to post modest growth going forward despite the economic malaise in China.
On Wednesday, JD reported quarterly earnings that were far ahead of expectations. This led to a double-digit pop in the stock price. Not only were the results great, but the company also announced a massive shares buyback going forward.
It’s easy to come up with a laundry list of risk factors for the Chinese economy and tech sector right now. But if and when things do go right for the local economy, JD shares should skyrocket.
Starbucks (SBUX)
Some investors are concerned to buy Chinese stocks directly due to the heightened geopolitical concerns at the moment.
Fortunately, there is another way to get exposure to the Chinese comeback as well. That second way is through consumer companies that have heavy exposure to the mainland Chinese population.
Starbucks (NASDAQ:SBUX) is a perfect example of that. The coffee chain has set up an impressive 6,804 stores in China as of October 2023. This makes China the company’s second-largest market overall, only trailing the United States. And Starbucks doesn’t have any other countries above 2,000 stores, making China by far its most important international locale.
This has put SBUX stock in the penalty box for the time being. Shares are stuck near their 52-week-lows as the company faces labor strife in the U.S. market and underperformance from its Asian operations. But when China returns to growth, that should power Starbucks’ overall results. With SBUX stock flat since 2019, shares are set for a big move once sentiment improves.
On the date of publication, Ian Bezek held a long position in JD stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
