Companies headquartered in China still hold allure for investors as its market dipped since reaching 2019 highs in April on concerns about global growth, unpredictable trade moves by the U.S. and political unrest.
The country’s Shenzhen Component Index slid 6.4% from its high in April but is up 15.7% year to date. The Shanghai Composite Index also retreated from its high in April, by 11.6%, with a 17.3% gain for the year overall. And the MSCI Emerging Markets ETF (EEM, Financial), of which China-based stocks compose 32.31%, is down 11.8% since April but up 1.2% for the year to date.
Ray Dalio (Trades, Portfolio), founder of world’s biggest hedge fund Bridgewater Associates, is one of the voices trumpeting the country’s potential. In a YouTube interview earlier this month, he called not investing in China “very risky” and compared it to history’s greatest growth juggernauts.
“Would you have not wanted to invest with the Dutch in the Dutch empire?” he asked. “Would you have not wanted to invest in the industrial revolution and the British empire? Would you not want to invest in the United States and the United States empire?”
GuruFocus data also foresees strong performance ahead for China. Based on GDP, dividends and market valuation, data suggests the country could return 28.2% in the future, compared to a 1.5% decline forecast for the U.S. market.
The effects of the trade war have sparked billions in outflows from Chinese equities, though, and a decline in economic growth could pose risks for investors in the country in coming months. If a slowdown occurs, the government would likely intervene, Matthews China Fund (Trades, Portfolio) said in its second-quarter letter.
“Skepticism around trade aside, Chinese corporate earnings continue to be among the strongest in emerging markets, albeit with a moderate slowdown in economic activity in China,” the fund’s portfolio managers wrote. “Should the Chinese economy slow further, most market watchers expect Chinese policymakers to act swiftly to maintain economic stability.”
In the second quarter, both US-focused and international funds GuruFocus tracks bought China-based stocks. The stocks seeing the most buying were: Baidu Inc. (BIDU, Financial), New Oriental Education & Technology Group Inc. (EDU, Financial),Vipshop Holdings Ltd. (VIPS, Financial), JD.com Inc. (JD, Financial) and Ctrip.com International Ltd. (CTRP, Financial).
Thirteen investor GuruFocus tracks bought shares of internet search giant Baidu Inc. in the second quarter. The largest holding belongs to Dodge & Cox, with 2.37% of shares outstanding. Ray Dalio (Trades, Portfolio) made the largest increase, expanding his position by 238.6% to 0.03% of shares outstanding.
Baidu Inc. has a market cap of $36.54 billion; its shares were traded around $104.83 with a price-earnings ratio of 15.41 and price-sales ratio of 2.38. Baidu Inc. had an annual average earnings growth of 38.60% over the past 10 years. GuruFocus rated Baidu Inc. the business predictability rank of 3-star.
New Oriental Education & Technology Group Inc. (EDU, Financial)
Eleven investors GuruFocus tracks bought shares of New Oriental Education & Technology Group Inc. Chris Davis (Trades, Portfolio), with a 7.02% stake, has the largest position. Sarah Ketterer (Trades, Portfolio) made the largest increase, enlarging her holding by 1,030.97% to 0.18% of shares outstanding.
New Oriental Education & Technology Group Inc. has a market cap of $17.97 billion; its shares were traded around $113.49 with a price-earnings ratio of 76.16 and price-sales ratio of 6.10. New Oriental Education & Technology Group Inc. had an annual average earnings growth of 18.90% over the past 10 years. GuruFocus rated New Oriental Education & Technology Group Inc. the business predictability rank of 4-star.
Vipshop Holdings Ltd. (VIPS, Financial)
Seven investors GuruFocus tracks bought shares of Vipshop Holdings Ltd. Jim Simons (Trades, Portfolio) has the largest position with 0.24% of the company. Ray Dalio (Trades, Portfolio) increased his position the most, by 238.57%.
Vipshop Holdings Ltd. has a market cap of $5.59 billion; its shares were traded around $8.37 with a price-earnings ratio of 14.95 and price-sales ratio of 0.44. Vipshop Holdings Ltd. had an annual average earnings growth of 43.40% over the past five years.
Seven investors GuruFocus tracks also bought shares of JD.com Inc. during the second quarter. The largest position, at 3.64% of shares outstanding, belongs to Chase Coleman (Trades, Portfolio). Pioneer Investments (Trades, Portfolio) started the largest new position, buying 0.13% of shares outstanding.
JD.com Inc. has a market cap of $44.69 billion; its shares were traded around $30.74 with a price-earnings ratio of 50.37 and price-sales ratio of 0.61.
Ctrip.com International Ltd. (CTRP, Financial)
Seven investors GuruFocus tracks purchased shares of Ctrip.com International Ltd. With a 1.93% stake, Ken Fisher (Trades, Portfolio) has the largest position. Ray Dalio (Trades, Portfolio) made the largest increase to his holding, adding 238.57%.
Ctrip.com International Ltd has a market cap of $17.62 billion; its shares were traded around $31.87 with a price-earnings ratio of 29.23 and price-sales ratio of 3.90.
See more China stocks gurus purchased using the GuruFocus All-In-One Screener here.
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