Chinese stocks benefit from China’s economic change as per the communiqué of the third plenum. The goal is to advance changes in a number of different industries. These consist of taxes and economic and environmental policies. For tech stocks, this results in a more stable and predictable environment. The focus on increasing domestic consumption and developing technology presents growth prospects for businesses operating in these domains. This may lead to an increase in stock values. By encouraging tech growth and infrastructure development, integrating the digital and real economies also benefits tech and infrastructure stocks.
Moreover, the pledge to support the non-state sector may ensure fair competition for all forms of ownership and can revitalize the underperforming private sector. This could lead to improved financial performance for companies, thus positively impacting their stock prices. The strategic push towards the 2029 deadline for science and tech’ quality workforce’ will benefit industries based on tech advancement. Overall, these measures may create a conducive environment for pro-market growth, which will positively impact Chinese stocks.
Top Chinese Stocks: Alibaba (BABA)
China’s economic shift towards increased domestic consumption and tech-driven growth directly benefits Alibaba’s market valuation. To begin with, the robust performance of Alibaba’s Taobao and Tmall platforms. In Q4 fiscal 2024, They had a double-digit annual growth in Gross Merchandise Value (GMV). This points to a successful adaptation to China’s evolving market demand. As domestic consumption rises, Alibaba has an enhanced user-first strategy. This includes competitive pricing and high service. This positions it favorably to capture a larger market share, boosting its top-line.
Moreover, Alibaba’s strategic investment in AI and cloud computing reflected a triple-digit annual boom in AI-related top-line and strong demand for Alibaba Cloud’s services. The company may capitalize on China’s push towards technological advancement. By developing competitive AI infrastructure and reducing cloud service costs, Alibaba enhances its technological edge and attracts more clients. This led to high top-line growth in its cloud segment.
Finally, Alibaba’s international digital commerce has a 45% annual top-line increase. This may continue to benefit from China’s expansion in global trade. This international growth, combined with Alibaba’s solidified logistics and AI capabilities, expands its market reach. Thus, China’s economic shift may give Alibaba a potential valuation uplift over the mid-to-long term.
Tuya (TUYA)
Tuya (NYSE:TUYA) leads the Internet of Things (IoT) industry. The company’s overall revenue in Q1 2024 was $61.7 million, up 29.9% annually from Q1 2023’s $47.5 million. This growth exceeds the market consensus growth rate of about 15% per year. Moreover, the yearly rise would be an even more remarkable 35% if the adverse effects of the United States dollar and RMB exchange rates were taken into account. This significant revenue growth highlights Tuya’s astute market opportunity-capture tactics and the strong demand for its goods and services.
Further, Tuya’s blended gross margin reached 47.8% in Q1 2024, setting a new historical high. This represents a 3.5 percentage points increase from 44.3% in Q1 2023. The gross margin improvement is primarily through the higher proportion of higher-margin products in Tuya’s portfolio. Specifically, the gross margin of IoT PaaS increased to 46.4%. This is up 5.9 percentage points from 40.5% in the same period last year. This enhancement in gross margin indicates Tuya’s successful efforts in optimizing its product mix and operational efficiencies.
To conclude, Tuya’s solid revenue growth and gross margin improvements position it among the top Chinese stocks.
JD.Com (JD)
JD.Com (NASDAQ:JD) is one of China’s largest e-commerce companies. The company’s net revenues for Q1 2024 reached RMB 260 billion ($136 billion), marking a 7% increase annually. This growth was due to a 7% boost in product revenues and a 9% increase in service revenues. The growth of product revenues emerged through contributions from electronics and home appliances, which grew by 5%. The general merchandise category rebounded strongly, achieving double-digit growth in the supermarket segment.
Additionally, service revenues grew primarily by logistics and other service-related activities. These activities have a 14% annual boost. The diverse revenue streams and solid performance across multiple product categories highlight JD.Com’s fundamental ability to capture market opportunities and derive growth through product and service offerings. The net income was RMB 8.9 billion ($1.2 billion), up from RMB 7.6 billion, with a net margin of 3.4% compared to 3.1%. In short, JD.Com’s fundamental ability to derive constant top-line and profit growth with its solid market position and operational edge.
To sum up, as JD.Com continues to capture market opportunities and expand its market share, it is a top mark on the Chinese stocks to buy list.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
As of this writing, Yiannis Zourmpanos held long positions in BABA and JD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
