5 Best Chinese Stocks to Buy in December 2021

While the US stock markets are having a splendid run in 2021, U.S.-listed Chinese stocks have underperformed. From China’s crackdown on tech companies, the slowdown in the Chinese economy, and US-China tensions, plenty of issues have been weighing down on Chinese stocks.

The delisting of Didi from the US markets within months of its listing hasn’t helped Chinese stocks either. There is a delisting sword hanging over several Chinese stocks especially those that are listed as a VIE (variable interest entity).

Chinese stocks have underperformed

Meanwhile, while Chinese stocks have underperformed in 2021, and even considering the longer time horizon, Chinese stock markets are still below their 2007 highs and are among the worst-performing major stock markets of the last decade.

To be sure, there are several risks for Chinese stocks including fears of a crackdown in China and a possible delisting in the US. However, the risk-reward for some of the Chinese stocks looks quite attractive now. Here are five such names.

1. NIO (NYSE: NIO)

Among Chinese stocks, NIO looks like a good buy in December. The stock has underperformed badly this year even as fellow Chinese EV stocks have recouped some of their losses. However, the stock looks a good buy for 2022 as its valuations now look quite reasonable as compared to other EV stocks.

NIO Day is scheduled for later this week where the company is expected to announce new models. Also, the company would eventually expand beyond China. It has already entered Norway and is expected to launch in other European markets soon.

NIO is a good Chinese stock to buy in the EV industry

NIO is among the most promising Chinese EV stocks which have built a niche for itself in the premium EV market. The company’s BaaS (batter-as-a-service) is another differentiator and helps it lower the initial buying price for its cars.

The outlook for Chinese EV stocks in general looks positive looking at the impetus that the government has placed on the sector. The Chinese government sees electric cars as a strategic industry and the sector forms part of its “Make in China 2025” program.

While 2021 hasn’t been a good year for NIO, it should see a rebound in 2022. If you are looking to add a Chinese stock to your portfolio, NIO should definitely be on your radar.

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2. Baidu (NYSE: BIDU)

Baidu stock has lost a third of its market capitalization in 2021. However, UBS sees it as a good Chinese stock to buy. Wall Street analysts are also bullish on Baidu stock and its median target price of $234.26 is a premium of 64% over current prices. Of the 41 analysts covering the stock, 34 rate it as a buy while five have a hold rating. The remaining two analysts have a sell rating on the stock.

UBS has listed Baidu as a top Chinese stock to buy

UBS is bullish on Baidu and is particularly positive on the company’s autonomous driving and robotaxi business. The company is a diversified play on the Chinese economy. While the company faces risks, like other Chinese stocks, it looks a good buy at these prices.

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3. BYD Company (OTC: BYDDF)

BYD Motors is often overlooked even as it outsells all major EV companies like NIO, Li Auto, and Xpeng Motors in China. The company is a diversified play and is the fourth largest EV producer globally. It is also the second-largest producer of electric busses. The company is vertically integrated and produces lithium-ion batteries.

Notably, even Warren Buffett, who is known for his value investing credentials, has invested in the company. BYD is a profitable company, unlike other Chinese EV companies that are posting losses.

BYD is a reasonably valued electric vehicle stock

While valuations of some of the EV stocks might appear stretched, BYD looks reasonably valued with an NTM EV-to-EBITDA multiple of just about 32x. If you are looking at a reasonably valued electric vehicle stock that even Buffett likes, BYD would fit the bill.

Incidentally, since the stock trades on the OTC markets as well as the Hong Kong exchange, it is relatively well cushioned if Chinese stocks are delisted in the US.

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4. Alibaba (NYSE: BABA)

While Warren Buffett loves BYD, his deputy Charlie Munger has been buying Alibaba stock. Notably, fund managers have a mixed opinion over BABA stock. Cathie Wood of ARK Invest exited the stock sometime back and even famed investor Mohnish Pabrai has sold BABA shares.

Damodaran likes BABA among Chinese stocks

However, Ashwath Damodaran, who’s known as the “dean of valuation” has said that he’s now ready to buy BABA stock. He said “At the prices at which it’s trading, I think not withstanding all the worries about corporate governance and the Chinese government, I think it’s well positioned to be a long-term investment. He called BABA a solid company and said that he likes the stock as a long-term investment.

Indeed, while BABA stock could be volatile in the short term amid the noise over delisting as well as slowing growth in China, it looks among the best stocks to buy for the long term. The stock’s valuation is at a big discount to global e-commerce companies and the risk-reward looks attractive at these price levels.

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5. Tencent (OTC: TCEHY)

Tencent is another good Chinese stock to buy in December. The company has a diversified business and also has a flourishing investment business which almost makes it the Berkshire Hathaway of China. Incidentally, while Pabrai has trimmed stakes in BABA, he is bullish on Tencent.

Tencent also trades on the OTC markets. The company is a play on the Chinese tech industry. While some aspects of the company’s business, especially the gaming vertical have been hit somewhat by China’s tech crackdown, the stock looks quite attractive considering the strong business model and the massive investment portfolio.

Overall, Chinese stocks are a good investment opportunity and give exposure to the world’s second-largest economy. While the country’s GDP growth has come down, it is still among the world’s fastest-growing economies.

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