It’s natural for U.S. investors to fear China right now. Between the ongoing U.S.-China trade war, fraud exposed at publicly traded Chinese companies like Luckin Coffee (LKNCY), and the president of the United States repeatedly referring to COVID-19 as the “China virus,” distrust between the two largest economies in the world is at all-time highs. But that doesn’t mean you should ignore China altogether as an investor. In fact, many high-profile, large-cap Chinese ADRs are faring quite well these days.
The Invesco Golden Dragon China ETF (PGJ), which is a proxy for all the top Chinese ADRs (American Depositary Receipts), is up 28.8% in 2020—better than the year-to-date return in the Nasdaq (+25.7%) and more than five times the return in the S&P 500 (+5.4%). To ignore Chinese stocks means cutting off some of the fastest-growing companies in the world.
Also, there’s this: due to strict lockdowns, China has had far greater success putting out the coronavirus fire than America has. You may not believe the numbers they’re giving—a mere 85,000 people have been infected total, equivalent to roughly two days of U.S. infections, which is hard to buy—but their economic rebound has been real.
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The Chinese economy grew by 3.2% in the second quarter, about half its usual growth rate but well up from the 6.8% decline it suffered in the first quarter. U.S. GDP declined 9% sequentially in the second quarter, in part because the virus—and subsequent shutdowns—arrived in America a couple months after they originated in China.
As China has returned to relative normalcy, its largest companies have been cashing in, capitalizing on pent-up demand from consumers after they’d been shut in for months. The companies that have rebounded the quickest have seen strong upticks in their share prices.
The following five large-cap Chinese ADRs have doubled in 2020, despite some bleak times at the beginning of the year. And their latest quarterly sales growth has been the primary catalyst.
Here they are, in descending order of market cap:
These 5 Large-Cap Chinese ADRs Have Doubled this Year
JD.Com (JD)
Q2 Revenue Growth: 33.8%
YTD Returns: 120%
NIO Limited (NIO)
Q2 Revenue Growth: 146.5%
YTD Returns: 438%
GSX Techedu (GSX)
Q2 Revenue Growth: 366%
YTD Returns: 338%
Bilibili (BILI)
Q2 Revenue Growth: 70%
YTD Returns: 152%
Zai Lab Limited (ZLAB)
Q2 Revenue Growth: 461%
YTD Returns: 106%
Those names may not be familiar to you. But the growth is irrefutable. NIO, in fact, has been on the radar of Carl Delfeld, Chief Analyst of our Cabot Global Stocks Explorer advisory, for years. GSX Techedu and Bilibili have been favorites of our growth investing expert Mike Cintolo. And all of them are red-hot right now.
Granted, there are risks when it comes to investing in Chinese companies. Luckin Coffee was a Wall Street darling until the rising coffee company was exposed for over-inflating some of its numbers, and the stock was hammered accordingly, plummeting from as high as 50 a share earlier this year to as low as 1.38 per share. Yikes.
But those kinds of horror stories are the exceptions. Legitimate, world-class profit growth is usually the rule. And with China’s economy in a more accelerated stage of its recovery than America’s at the moment, it’s a good time to invest in China.
You could start a position in any one of these five Chinese ADRs and feel pretty secure. If you’re apprehensive, then by all means start small.
Or, if you want to know what other global stocks are out there—in China or elsewhere—then I highly recommend subscribing to Carl’s Cabot Explorer advisory. As the name suggests, Carl recommends stocks from around the world, including China. His returns speak for themselves: the average position in his portfolio has a gain of 151%, as of October 1.
To learn more, click here.
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