Many companies have taken a beating in the tumultuous stock market of 2022, and Chinese stocks are probably among the most battered. Chinese equities have seen persistent selling pressure, resulting in market value losses of trillions of dollars.
Over the past year, the Hang Seng China Enterprises Index dropped 37.5%, while the Shanghai Composite fell about 12%.
China's Unresolved IssuesChina has been dealing with a number of difficulties, including government crackdowns and increased controls on private companies, all of which have affected the economy. Last month, however, China's Politburo issued words implying that a sweeping crackdown on online platforms will be loosened.
The reappearance of COVID-19 in China has further disrupted supply chains, implying a further economic recession.
To make matters worse, several Chinese stocks are in danger of being delisted from overseas exchanges. Along with DiDi Global (DIDI), numerous more companies have recently been added to that list, including JD.com (JD), Nio (NIO), and Xpeng (XPEV). These equities suffered significant losses as a result of the delisting news and the overall market crisis.
Unfortunately, these problems appear to be prevalent and long-lasting. As a result, the downside risk to China's economic outlook in 2022 has grown greatly.
Optimistic Approach to Increase Investor ConfidenceChinese businesses appear to be thinking strategically. Due to regulatory uncertainty and logistical and labor disruptions due to lockdowns, Chinese enterprises are limited in their ability to use their cash wisely. As a result, most of these corporations have chosen safe choices such as stock buybacks and dividends.
These moves could help to bolster their shattered stock prices and signal, at least in part, confidence in the long-term prognosis.
We've put together a list of two Chinese stocks that have used the aforementioned method to improve their valuations.
Alibaba (BABA)Alibaba is a global Chinese technology corporation specializing in e-commerce, retail, and technology.
Alibaba, just like other Chinese companies, is facing a lot of difficulties in dealing with the Chinese authorities. The stock has dropped more than 61% in the past year.
Alibaba's latest attempt to stem the slide in its stock price was to increase its share buyback capability from $15 billion to $25 billion. The repurchase authorization is valid for two years through March 2024.
Alibaba's stock price rose as a result of the company's large new buyback plans.
Tomorrow, the e-commerce behemoth will release its fourth-quarter fiscal 2022 profits. It will be fascinating to see how Alibaba performs in the face of regulatory and other macroeconomic hurdles.
Ahead of fiscal Q4 results, Mizuho analyst James Lee anticipates Alibaba's first half of 2022 to be challenging, owing to sluggish consumer spending. It also anticipates the company's performance to be impacted by restricted corporate operations induced by the Chinese lockdowns.
The four-star analyst maintained a Buy rating on the stock but decreased the price target to $160 from $180 per share.
On TipRanks, Alibaba stock commands a Strong Buy consensus rating based on 17 Buys and one Sell. The average Alibaba price target of $170.29 implies upside potential of approximately 103% from current levels.
However, hedge funds have been Negative on Alibaba stock. TipRanks' Hedge Fund Trading Activity tool shows that hedge funds decreased their holdings in BABA stock by 252.9K shares in the last quarter.
JD.com (JD)JD is a Chinese e-commerce behemoth that dominates the consumer discretionary market.
The company recently announced that a special cash dividend of $0.63 per share, or $1.26 per ADS, has been approved. The special dividend will be worth around $2.0 billion in total.
Apart from the foregoing, the company increased its share repurchase plans from $2 billion to $3 billion at the end of 2021.
In its latest results for the fourth quarter ending December 31, 2021, JD reported strong results driven by robust online shopping demand. Adjusted earnings per share were RMB2.21 ($0.35), up 48.3% year-over-year, while net revenues increased 23% year-over-year to RMB275.9 billion ($43.3 billion).
Despite its positive performance, the company's stock price is under pressure from macroeconomic and regulatory factors. Its stock has dropped more than 32% in the last year.
However, Morgan Stanley analyst Eddy Wang is optimistic about JD's development prospects. He stated, "Although it's not immune to logistical disruption, we expect JD to benefit from the potential pent-up demand for home appliances and FMCG after the pandemic. Weak momentum in live-streaming e-commerce could continue after the pandemic."
As a result, Wang reiterated a Buy rating on the stock and a price target of $80.00 per share.
Overall, JD stock commands a Strong Buy consensus rating based on 10 Buys and one Sell. The average JD price target of $83.91 implies upside potential of approximately 64.9% from current levels.
However, hedge funds have been Very Negative on JD stock. TipRanks' Hedge Fund Trading Activity tool shows that hedge funds decreased their holdings in JD stock by 3.9 million shares in the last quarter.
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The expected easing of regulatory pressure and an increase in the share repurchase program significantly boosted the ADR (American Depositary Receipt) of the Chinese internet giant Alibaba (NYSE:BABA). However, Alibaba has lost a significant portion of its recent gains and has dropped over 19% over the past month. Further, it fell around 6.7% on Thursday and closed below the $100 a share mark.
What’s Hurting Alibaba?Investors turned their backs on BABA stock following China’s clampdown on its tech giants. Furthermore, an economic slowdown and increased competitive activity took a toll on its growth and, in turn, its share price.
Though there hasn't been any significant company-specific news recently, the fear of delisting from the American exchange would have triggered the recent selloff in Alibaba stock.
Notably, the SEC (Securities and Exchange Commission) recently added JD.com (NASDAQ:JD) to its provisional list of companies that may be removed from the American exchange if they fail to adhere to the HFCAA (Holding Foreign Companies Accountable Act). Shares of JD.com closed about 6% lower on Thursday.
Meanwhile, China’s leading tech-based mobility platform provider DiDi Global (NYSE:DIDI) recently announced that it plans to delist from the NYSE.
Bottom LineAlibaba stock could continue to remain volatile on delisting fears. Further, the slowdown in its business amid a weak macro environment and increased competition remains a drag.
Mizuho Securities analyst James Lee lowered his price target on BABA stock as he expects the resurgence of the coronavirus to negatively impact consumer spending, and in turn, Alibaba’s financials in the first half.
Nevertheless, Alibaba’s growing active consumer base, investments in cloud infrastructure, and international expansion bode well for long-term growth. Of the 18 analysts providing recommendations on BABA stock, 17 recommended a Buy and one had a Sell for a Strong Buy consensus rating. The average Alibaba price target of $170.29 implies 79.9% upside potential to current levels.
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Alibaba (BABA), a multinational technology and e-commerce behemoth, is set to report its Q4 2022 earnings on May 6.
With a market capitalization of $263 billion, the company has lost almost 13% of its worth over the past three months. The stock price of Alibaba continues to be weighed down by recent lockdowns, ongoing regulatory challenges, macro headwinds, and heightened competition.
Alibaba posted mixed quarterly earnings in Q3 2022. Revenues of $38.01 billion were up 10% year-over-year, but fell short of the $38.83 billion consensus projection. Non-GAAP diluted earnings per ADS of $2.65 came in above the consensus estimates of $2.55.
Let's take a look at the company's prospects for the upcoming quarter.
Website Visit StatisticsThe number of visitors to Alibaba's e-commerce websites — alibaba.com, aliexpress.com, and taobao.com — can reveal a lot about the company's upcoming sales performance.
So, ahead of the Q4 print, we used TipRanks' Website Traffic Tool to have a better understanding of the company's results.
However, on a year-over-year basis, monthly visits to the Alibaba website spiked 61.8% in the fourth quarter.
Alibaba’s Expectations for Q4Alibaba is expected to report adjusted earnings of $1.11 per share in the fourth quarter, according to experts. The Q4 EPS forecasts show a double-digit drop in earnings of around 89% from the year-ago quarter.
Wall Street’s TakeMizuho analyst James Lee maintained a Buy rating on the stock but decreased the price target to $160 from $180 per share.
Lee anticipates the first half of 2022 to be challenging for Alibaba due to the weak consumer spending and restricted corporate operations caused by the resurgence of the coronavirus and lockdowns in China. He believes that COVID's negative consequences will be felt across all segments, namely eCommerce, Advertising, and Cloud Computing.
On TipRanks, Alibaba stock commands a Strong Buy consensus rating based on 17 Buys and one Sell. The average BABA price target of $170.29 implies upside potential of approximately 74.1%.
Bottom LineAlibaba's upcoming Q4 results could be hurt by the Chinese economic downturn, rising competition in the e-commerce industry, disruptions from the Russia/Ukraine conflict, and other macro headwinds.
On the other hand, BABA's dominant market positioning, international expansion, expanding active consumer base, and investments in growth initiatives should provide a solid foundation for long-term growth.
Learn more about the Website Traffic tool in this video by Youtube sensation Tom Nash.
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