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No matter how you slice it, Chinese internet stocks look set to outperform their American counterparts. Unlike in the U.S., internet growth remains explosive in China, including e-commerce and internet advertising growth. China’s economy, however, has slowed, but it’s still poised to grow 6.5% this year.
China’s e-commerce sales will rise to 57% of the world’s total in 2019, up from 47% in 2016, while the U.S. share will fall to 17.6% in 2019 from 20.7% in 2016, eMarketer predicted.
Moreover, last year 43 million Chinese citizens gained access to the internet, bringing the total number of internet users in the Asian country to 731 million. Finally, China’s ad spending as a percentage of its GDP is only 0.6% versus 1% for the U.S., according to Barron’s. Karen Chan, an analyst at research firm Jefferies, expects China to start catching up to us in that metric as its economy becomes more dependent on consumption and services, the publication reported.
Considering these trends, Chinese internet stocks should be included in every investor’s portfolio. All of these companies boast strong businesses and powerful, positive growth catalysts. Even at current levels, each one is a solid investment.
Chinese Internet Stocks to Buy: Tencent (TCEHY)
Tencent Holdings Ltd (OTCMKTS:TCEHY) has a 33% share of the Chinese online payments market, and JPMorgan predicts that the market will grow 400% by 2020. Additionally, as more consumers begin utilizing Tencent’s online payment system, it will be able to more easily sell them other products online, Barron’s points out.
Tencent is also very well-positioned to benefit from increases in Chinese internet ad spending, as Jefferies analyst Karen Chan predicts that mobile in-feed ads such as those on its popular WeChat messaging app will be “the fastest growing ad format.”
Finally, the user base of the company’s social media platforms is growing more quickly than Facebook Inc’s (NASDAQ:FB) user base, and Tencent reportedly has become China’s most valuable brand, indicating that it must be doing a lot of things right.
Chinese Internet Stocks to Buy: Weibo (WB)
Weibo Corp (ADR) (NASDAQ:WB) has been compared to Twitter, but the Chinese company’s performance has been so much better than that of its American counterpart. Weibo’s ad revenues jumped 42% last year, as its user base surged 33% in 2016.
Live streaming and video have helped increase the platform’s popularity, and it scored a coup in July when it became the NBA’s official China partner. The NBA is very popular in China.
Additionally, even though Weibo on Feb. 22 reported results and guidance that surpassed analysts’ consensus estimate, Weibo’s stock is down around 15% since that time. The decline has created a great entry point in Weibo.
Chinese Internet Stocks to Buy: JD.com (JD)
JD.Com Inc(ADR) (NASDAQ:JD) is another hyper growth Chinese company whose fourth-quarter results recently surpassed expectations. The company’s net revenues soared 47% in Q4, while its gross profit soared 58% in Chinese currency.
Moreover, research firm Pacific Crest recently started coverage of the Chinese internet stock with a $40 price target and an “overweight” rating, The Fly reported. JD “has disrupted the retail industry in China with user scale of 220M plus and its best in class logistics,” the website quotes the analyst as saying.
In the near term, margin expansion and the company’s spinoff of its finance unit should enable it to generate “sustained profitability,” the firm reportedly added.
Considering its strong growth and powerful, positive catalysts, Chinese internet stocks TCEHY, WB and JD should be able to exploit the upward trajectory of the Chinese internet sector and deliver great returns for investors.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.