More than a handful of China stocks, including Alibaba, have gained more attention after they started rocketing higher in late September. As their moves have cooled down, are investors now thinking they have rebounded too quickly ahead of the U.S. presidential election?
Amid an extremely close battle for the White House between former President Donald Trump and current Vice President Kamala Harris, investors should not ignore risks that a stricter, more isolationist U.S. trade policy in the future may have for China, the world's No. 2 economy and its companies.
While Harris appears to be signaling no change in the tariffs on Chinese imports placed by President Joe Biden, Trump seeks to go much further. According to TheHill.com, Trump's plan includes not only a general tariff on all imported goods in the range of 10% to 20%. The plan would add an additional tariff specific to imports from China, one of America's key trading partners.
"Trump hasn't talked much, if at all, about exemptions to his proposed tariffs, which could grate against trade deals the U.S. has with many different countries," TheHill.com wrote earlier this week.
China Stocks To Watch
Yet, the stock market also seems to be favoring China stocks that may benefit more from the government's recent policy decisions aimed at sparking stronger economic activity.
Within the IBD 50, for instance, Atour Lifestyle is a leader among China stocks and sports a 52% gain for the year so far. And what about its September breakout from a long base with a trendline entry near 19? Superb, resulting in a gain of more than 30% so far.
The strong stock action implies Atour might not suffer any direct impact that an escalation in the trade war between the U.S. and China may inflict on its business. The hotel chain mainly serves travelers within the vast nation and competes in a wide range of lodging categories, from budget to luxury. As of the end of June this year, Atour operated 1,412 hotels offering a total 161,686 rooms.
Atour Lifestyle Fundamentals
Atour's second-quarter adjusted net income rose 27% to 304 million yuan, or $42 million, vs. a year earlier on a 65% jump in revenue to 1.8 billion yuan ($247 million). According to MarketSurge, earnings per share increased 125%, 149%, 54% and 31% vs. year-ago levels through the second quarter of this year. Expect Q3 results to arrive Nov. 14, with analysts seeing profit soaring 297% to 35 cents a share and revenue up 36% to $247.8 million.
According to IBD Stock Checkup, Atour gets an outstanding 97 Composite Rating. The Composite Rating combines fundamental, stock price strength and fund ownership metrics into a single score to aid the selection of big market winners, including China stocks.
Atour Lifestyle stock has been treading water for more than three weeks, but that's not at all negative when you consider that ATAT had almost doubled from its summertime low of 15.22.
Inside The IBD 50: Chart Analysis On The Top 10
Large Cap China Stocks Today
Beijing's stimulus moves seem to have offset worries for China companies that could suffer from higher U.S. tariffs.
JD.com, highlighted on Monday's episode of IBD Live, rallied nearly 4% on Monday after going on a torrid run from 26 to 47 in just three weeks. JD also broke out of a cup without handle showing a 35.69 buy point, according to MarketSurge. But shares have pulled back quickly in the past two sessions.
Watch to see if the e-commerce titan keeps finding support at the 21-day exponential moving average.
E-commerce innovators Alibaba and PDD, as well as global automaker BYD, have also made notable moves among China stocks. Among the three, BYD shows the highest Relative Strength Rating at 92.
On Wednesday, BYD reported a 24% gain in quarterly revenue to 201.1 billion yuan and earnings of 4 yuan per share, up 11.7%.
The stock may be forming a base on base.
Alibaba stock has made a normal pullback to its 10-week moving average and rebounding bullishly. At one point, Alibaba thrust 37% above a cup-with-handle base and its 85.79 buy point. But PDD, down 3.5% on Wednesday, is down 17% since Jan. 1. Earnings are seen decelerating from 83% growth this year to $11.96 a share to a still-healthy 19% increase in 2025 to $14.25.
The China Economy: Will It Accelerate?
ETFs that track a wide range of China stocks soared in the second half of September after the People's Bank of China reduced several key interest rates. Also, the government forced large cuts in mortgage rates and the down-payment ratios for new homebuyers.
"There are several stark contrasts to prior stimulus measures that suggest this round really is different," Brandywine Global Funds wrote in a recent piece for clients. "The urgency and forcefulness represent a material turn in policymaking for China."
At the same time, portfolio managers at Brandywine stress that monetary easing alone "is insufficient."
"It must be combined with big and decisive fiscal easing and related structural form, such as a fiscal transfer from central to local governments and wealth transfer from state-owned enterprises to households," Brandywine wrote in its "Around The Curve" commentary.
China Stocks: Watch This ETF
China's gross domestic product expanded 4.6% year over year in the third quarter, to $13 trillion (or 94.97 trillion yuan). It slightly edged a Reuters forecast of 4.5% but growth slowed from 4.7% in Q2.
To see if the measures truly take root among China stocks, however, one might want to focus on relative and absolute performance by ETFs that cover a wide number of tech and nontech industries. They include iShares China Large Cap, a long-running exchange traded fund.
FXI fell 1.3% to 31.63 on Tuesday, underperforming the major U.S. indexes.
Since the start of September, the ETF has surged 21% through Tuesday action, vs. a 3.4% rise by the S&P 500 and a 1.7% gain by the Dow Jones Industrial Average. The iShares China Large Cap ETF is up 31.7% year to date vs. a 21.9% advance by the S&P 500.
Cheap Stocks To Buy: Reitar Makes This Prestigious Screen
Screening For Winners
Using MarketSurge, IBD looked for China-based companies that show above-average ratings for fundamentals (including earnings, sales and margins), technicals (ability to rise faster than the S&P 500 and market peers) and quality of institutional ownership. Both the Earnings Per Share Rating and the Relative Strength Rating have to score 85 or higher.
Here are the top companies, updated as of Wednesday's close and ordered by Relative Strength Rating:
| Symbol | Name | Current Price | % Off High | 50-Day Avg $ Vol (1000s) | Market Cap (mil) | Comp Rating | EPS Rating | RS Rating |
|---|---|---|---|---|---|---|---|---|
| RITR | Reitar Logtech | 7.86 | -6.48 | 2454 | 490.8 | 95 | 93 | 99 |
| QFIN | Qifu Technology | 33.64 | -4.51 | 62037 | 5109.2 | 97 | 88 | 98 |
| XIACY | Xiaomi | 16.67 | -0.42 | 3364 | 82795.9 | - | 85 | 97 |
| FUTU | Futu | 96.14 | -26.33 | 484822 | 13261.2 | 98 | 86 | 96 |
| JD | JD.com | 40.03 | -16.29 | 904541 | 57248.3 | 97 | 98 | 95 |
| ATAT | Atour Lifestyle | 26.47 | -9.19 | 37853 | 3646.2 | 97 | 99 | 94 |
| BYDDF | BYD Co. | 38.37 | -8.65 | 2505 | 104676.1 | - | 94 | 92 |
| CAAS | China Automotive Systems | 4.4 | -11.47 | 295 | 132.8 | 90 | 86 | 92 |
| PNGAY | Ping An Insurance | 12.37 | -21.71 | 5410 | 112630.3 | - | 94 | 91 |
| TCEHY | Tencent | 52.9 | -14.12 | 145572 | 494219.9 | - | 96 | 87 |
| TTNDY | Techtronic Industries | 73.03 | -7.38 | 4480 | 26792 | - | 91 | 86 |
| LICN | Lichen China | 2 | -18.08 | 557 | 53 | 91 | 94 | 85 |
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