We recently published a list of The 10 best Chinese stocks to buy now. In this article, we take a look at where H World Group (NASDAQ:HTHT) is performing compared to other Chinese stocks.
Due to improved investor sentiment, almost all major equity markets are up year-on-year, with the exception of Chinese equity markets, which continue to underperform and are trading close to the valuations seen three years ago, before COVID lockdowns.
Over the past three years, Chinese stocks have lost about $6 trillion in value. Global index creator MSCI has already announced it will cut up to 60 Chinese stocks from its indexes in response to underperformance over the past few years. The cut will signal waning need and demand for some of the country’s stocks in foreign investors’ portfolios. Despite the cuts, the index will still include some of the best Chinese stocks to buy right now.
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The underperformance is due to growing concerns about the Chinese economy, which continue to make the investment community nervous. The Chinese economy has always outperformed the US economy, growing 123% between 2012 and 2022, compared to 58% for the US.
Nevertheless, the Chinese economy has struggled with a number of problems in recent years, including a real estate downturn, deflation, high levels of debt and an ideologically motivated policy shift that is driving foreign companies out of the economy.
While the economy grew by 5.2% last year, which is significantly higher than the 2.5% in the US, this was the slowest pace of growth since 1990, excluding the pandemic period. While economists expected the economy to slow even further in 2024, with growth averaging 4.5%, there are early signs of recovery. The Chinese economy grew by 5.3% in the first quarter and 4.7% in the second quarter.
Nevertheless, the 4.7% growth in the second quarter, while reasonable, is well below the double-digit growth rates the country has seen in recent decades, which is causing major concerns in the stock market. On the other hand, the slowdown in economic growth is not the only headwind that is scaring investors away from the Chinese economy.
The deteriorating relations between the US and China have always unsettled investor sentiment. While the US imposed trade tariffs on Chinese companies and restricted access to some key technologies, China hit back with tariffs. Raising tariffs on Chinese electric vehicles from 25% to 100% and imposing trade tariffs on $18 billion worth of imports underscore the ever-deteriorating relations between the two economic powerhouses.
Amid the deteriorating macroeconomic situation, Chinese stocks began to show signs of recovery in the second half of the year. Promising sectors include the fixed asset investment sector, driven by faster investment in manufacturing and infrastructure. In addition, the industrial production and services sectors are also rising, and they are home to some of the best Chinese stocks to buy.
In July, global hedge funds added to their holdings in some of the best Chinese stocks to buy now, as most of them took advantage of low valuations after sharp declines. Still, hedge fund holdings remain near five-year lows.
In addition, analysts at BCA Research believe Chinese equities could protect fund managers from large losses as global risk assets face new threats. The firm has already upgraded onshore Chinese equities to overweight from neutral.
“We expect Chinese equities to fall less or as much as their global and EM peers in a bear market,” analysts including chief China strategist Arthur Budaghyan said in the report. Possible market support from Chinese sovereign wealth funds could mitigate potential declines, he added.
With the economic situation in China improving and sentiment in the stock market improving, now could be the best time to keep an eye on the best Chinese stocks to buy, as they are likely to outperform as we head into the end of the year.
Our methodology
To compile the list of the 10 best Chinese stocks to buy now, we went through the 50 largest US-listed companies from the iShares MSCI China ETF. Analysts believe these companies have significant upside potential. Once we had a consolidated list, we ranked the best Chinese stocks in ascending order of their upside potential (as of August 17).
At Insider Monkey, we’re obsessed with the stocks hedge funds invest in. The reason is simple: Our research shows we can beat the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (read more details here).
A modern, representative hotel with a well-lit entrance lobby.
H World Group (NASDAQ:HTHT)
Hedge fund holdings: 24
Share price potential: 89.25%
H World Group (NASDAQ:HTHT) is a consumer cyclical company that develops leased and franchised hotels in China. It operates a diversified portfolio of economy and upscale hotel brands and generates management fees and franchise fees.
The main driver behind the growth of H World Group (NASDAQ:HTHT) is its bold approach to expansion. As of March 31, 2024, the organization managed a network of 9,817 hotels with 955,657 rooms in 18 countries. This growth is fueled by natural expansion and strategic mergers, such as the purchase of Deutsche Hospitality, which has greatly expanded its presence in Europe. The company’s ability to adapt to evolving market trends and capitalize on its broad range of brands positions it favorably for further expansion.
H World Group (NASDAQ:HTHT) reported solid financial results in the first quarter. Revenues rose 17.8% year-on-year to reach RMB 5.3 billion (USD 731 million). The increase was due to a revival in travel demand and effective cost control. The company’s revenues for the quarter totaled RMB 659 million (USD 91 million).
Analysts on Wall Street currently rate the stock as a Buy with an average price target of $53.43, suggesting an upside potential of 89.25% from current levels. In addition, H World Group (NASDAQ:HTHT) rewards investors with a dividend yield of 2.195.
According to Insider Monkey’s database for the second quarter, 24 hedge funds were bullish on H World Group (NASDAQ:HTHT), compared to 34 funds in the previous quarter. Insider Monkey’s database shows that 24 hedge funds held shares in the company at the end of the second quarter of 2024.
Total HTHT 1st place on our list of the best Chinese stocks to buy. While we recognize the potential of HTHT as an investment, we believe that AI stocks promise higher returns and in a shorter time frame. If you are looking for an AI stock that is more promising than HTHT, read our report on the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
