The strong free cash flow generation should help with their commitments to the 'common prosperity' drive Beijing has been pushing over the past months.īaidu is the sole contender here which has seen its free cash flow decline. This implies that the remaining players like Tencent and NetEase should benefit from the consolidation.ĭespite fears of slower business growth amid the regulatory crackdowns and a weakening in the macroeconomy, four of the five selected companies have seen significant increases in their free cash flows over the past year. For instance, the suspension of new game titles approval since July has contributed to the deregistration of 140,000 small studios and gaming-related firms in China. However, when the dust is settled, the big players have a much better chance to survive and take a bigger pie of a still growing market. Their large size may have placed them as targets for regulators. One key reason for the selection is their hefty enterprise values which fall between US$38.6 billion to $589.8 billion, placing them among the largest of Chinese stocks with listings in U.S. They are namely: Alibaba Group, NetEase, Tencent Holdings Ltd ( OTCPK:TCEHY)( OTCPK:TCTZF), Baidu Inc. Best Chinese Stocks To Watch In 2022īy now, you may have guessed that the five large caps I have chosen to be the "Best Chinese Stocks To Watch In 2022" are those displayed in the price change chart. NTES stock managed to post an 8.2 percent gain from end-2020, albeit thanks to a big bounce on the penultimate trading day of 2021. The outperformance of NetEase ( NTES) deserves mention because the company's core gaming business was negatively impacted by a suspension in games approval while a key arm, Youdao ( DAO), was dragged into the sell-down of edtech names. Despite already being 'discounted' coming into 2021, BABA went on to lose nearly half its price through the year. The Chinese Internet sector representative ETF, the KraneShares CSI China Internet ETF ( KWEB), inevitably lost favor among investors, declining by more than half from end-2020.īABA stock, the face of the Chinese internet sector, led the bloodletting among the bigger names. Unfortunately, this had not helped with the case of Chinese stocks as the 'voting machine' mode is stuck and the 'weighing machine' mode did not get turned on after more than a year. I explained in Chinese Internet Weekly: Mea Culpa that my experience with stocks like Chipotle Mexican Grill ( CMG) and Crocs ( CROX) left me ingrained that I should stay the course with stocks that experience unjustified market pessimism. Thereafter, three main drivers resulted in the unabated selling of these stocks: i) delisting concerns due to the much-hyped Holding Foreign Companies Accountable Act, ii) the decimation of the for-profit after-school tutoring industry virtually overnight, as well as iii) trumpeted fears of a potential repudiation of VIEs by the Chinese government resulting in the Chinese ADRs losing all their value overnight.Īs a shareholder in several Chinese ADRs and a writer covering the sector, I have sought to dispel what I believed to be unfounded attacks on the related stocks. The double whammy quickly evaporated the early 2021 gains for many U.S.-listed Chinese ADRs. Archegos' leveraged bets subsequently unraveled amid a heightened regulatory environment that had widened beyond Alibaba Group. That belief, coupled with the positive momentum for tech stocks and a boost for certain Chinese internet stocks by some massive buying of Bill Hwang's family office Archegos, helped push the sector to a crescendo in February. The trigger was often attributed to a scathing speech by its founder Jack Ma decrying that outdated regulations had been hobbling the fintech industry. Alibaba Group Holding Ltd ( BABA) had appeared to be the sole target of Beijing after the authorities scuttled the initial public offering of its fintech arm, Ant Group. 2021 has been a painful year for shareholders of Chinese stocks in general.
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