Contrarian investor names 8 ‘crazy’ Chinese stocks to buy in 2024
Forgot about tensions with the United States and Europe, China might not need those export markets after all as the BRICS+ nations continue to grow (that’s Brazil, Russia, India, China, South Africa and other aligned nations).
This is the perspective of Jevons Global Chief Investment Officer, Kingsley Jones.
“China has the domestic innovation resources, the commitment to new markets like electric vehicles, solar energy, wind turbines, energy storage, smart cities and IoT, and decades of practical experience in expanding the production frontier at ever lower price points.
“Since China is now proving effective at bringing down the cost of electric vehicles, solar panels, energy storage batteries, and wind turbines, by a very large margin, their intended strategy ought to be clear for any analyst with the patience to examine the data.
“China clearly intends to replace the lost US and European market with a BRICS+ market. To succeed, they must meet the lower unit-price point.”
And hitting that price point is exactly what Chinese multinationals are now doing.
Take EV’s for example, US$50,000 per vehicle might be acceptable for mass market in the US, but in the BRICS+ industry experts put the required price point for mass market sales at around $10,000.
Jones points out the leading Chinese EV manufacturer BYD Company, has already hit that price point and is now ramping volumes of global exports.
“There is very little prospect of any manufacturer in the USA, or Europe, every reaching that delivered unit-price point,” he says.
“We are witnessing the birth of the Chinese Multinational Corporation (CMC). What makes this work is the sheer scale of purchasing power in BRICS+, at the China price. There is no longer much of an obstacle to this strategy, since China can now innovate to surmount almost any obstacle that the West might choose to put in its way.”
So, how can stock market investors get a piece of the action?
Here’s 8 Chinese stocks picks from Kingsley Jones… Even he says many will call them “crazy”.
8 Chinese stocks to buy in 2024
Contemporary Amperex Technology (CATL) (SHE: 300750)
CATL is the world’s largest lithium-ion battery manufacturer, with around 36% global market share of the electric vehicle market. CATL batteries are used by major international auto makers such as Tesla, Ford, NIO, Li Auto, Xpeng, Volvo, Hyundai and Toyota.
“The firm is currently profitable and has traded with a net margin of around 10% throughout the recent period of rapid business expansion. It currently trades on a PER of 15.34x trailing, with a one year forecast multiple of around 12.6x, for FY Dec-2024,” says Jones.
“For such a market-leading position in battery technology I think the firm is absurdly cheap.”
The firm has a market capitalization of around US$100 billion and has traded on the Shenzen Excahnge since its IPO in June 2018.
BYD Company (SHE: 002594) (HK: 1211)
You might have noticed more BYD EVs on the roads in recent years – Kinglsey Jones certainly has in his hometown of Canberra, Australia.
“I can observe an ever-increasing array of BYD vehicles, of several model types, in a generally welcoming domestic market,” he says.
In 2023, BYD surpassed Tesla to become the to-selling EV brand in the world. It has done this despite circumventing the massive United State’s market due the tensions between the United States and China.
BYD has a market capitalization of US$77 billion. Unlike many other EV stocks, BYD is profitable with a net margin of around 4%. It currently trades on a PER of 18.19x trailing, with a one year forecast multiple of around 13.7x, for the year ending December 2024.
The company was famously backed by Charlie Munger, but Berkshire Hathaway has reduced its stake in recent years.
“This is most likely due to geopolitical tensions.Berkshire Hathaway has a very high profile in the US market, and the US attitude towards any firm that does business in China has become quite hostile,” notes Jones.
“China accounts for 60% of global EV production, and that BYD is now the acknowledged market leader in global sales of New Energy Vehicles (NEV)… I am happy to buy and hold BYD.”
Midea Group (SHE: 000333)
Midea Group is “probably the largest Chinese appliance manufacturer that you never heard of,” says Jones.
The Chinese manufacturing giant has divisions in consumer appliances, heating, ventilation, and air-conditioning (HVAC), and robotics and automation.
“This firm is very modestly valued, with a potentially huge opportunity in BRICS+ markets. It does not seem to be widely followed by Western analysts. I think that is a mistake.
“The firm has a market capitalization of US$52 billion, trades at 1x times revenue, has a yield of around 4.66%, a trailing PER of 11.08x and a forward PER of 10.05x. I think it is cheap.”
Shenzhen Mindray Bio-Medical Electronics (SHE: 300760)
Shenzhen Mindray produces high-end biomedical equipment such as ultrasound machines, patient monitors, and anaesthesia workstations.
Th firms was venture financed by Walden International back in 1997 and IPO’s on the Shenzen exchange in October 2018.
“Mindray has a market capitalization of US$48 billion, a yield of around 1.90%, a trailing PER of 29.83x, and a forward PER of 24.82x. I think it is fairly priced for 20% growth potential,” says Jones.
“There is a tendency, in Western financial markets, to presume that China cannot innovate.
I think that is baloney. Mindray is a good counterexample to that prejudice.”
Advanced Micro-Fabrication Equipment (AMEC) (SHA: 688012)
AMEC is semiconductor equipment manufacturer.
Notably, for investors in the US, the technology it designs and manufactures outside of the core focus of US sanctions on Chinese advanced computing technology.
“It (AMEC) operates in plasma etching equipment and thin-film MOCVD equipment,” Jones says.
“These are typically used to make Light Emitting Diodes (LED) and power devices. It is possible that the USA may view LEDs as a threat someday, anything is possible, but the leadership heritage of this company, which was founded by Chinese-American semiconductor engineer Gerald Yin back in 2004, is quality.
“He has a history of innovative development, including contributions to development of Inductively Coupled Plasma (ICP), etching tools. The firm is not cheap, but interesting to follow.”
Naura Technology Group (SHE: 002371)
Naura is another semiconductor equipment firm which supplies a range of etching, vapour deposition, crystal growth, vacuum technology, and battery and magnet making process equipment – what Jones describes as “basic bread and butter to the global industry”.
“This firm does not appear to be sanctioned, but American employees had to stop working on any internal R&D projects. Presumably, all of these folks have now left,” says Jones.
“Naura is pretty key to the Chinese industry. Perhaps the US sanctions them and we get World War III… I don’t know, that decision is above my pay scale. Certainly, one firm to watch.”
Jiangsu Changjiang Electronics (JCET) (SHA: 600584)
This is the third and final Chinese stock on Jones list in the Semiconductor space.
And, yes, it also shrouded by the possibility of sactions
But Jones remains bullish,
“JCET may soon be in the crosshairs of further US scrutiny because they have a major market share position in global Outsourced Semiconductor Assembly and Test (OSAT). This is the downstream part of the semiconductor industry where chips are assembled into various forms of advanced packaging and tested for functionality and quality control,” he says.
“The so-called chiplet approach to semiconductor design involves combining individual chip dies, quite possibly from different process technologies, and assembling these into a single System in Package (SiP) end product.
“That is a cost-effective way to combine logic, with sensors, memory and possibly optical or radio communications chips.”
Jones warns the threat of sanctions is very real, so be mindful. But if it can avoid sanctions, shareholders might just find a great long-term investment in JCET.
Zijin Mining (SHA: 601899) (HK: 2899)
Zijin Mining Group is a multinational producer and explore of gold, copper, zinc and lithium.
“This company has probably the best growth profile for any major copper producer, worldwide,” says Jones.
“Copper is essential to the energy transition.The Democratic Republic of Congo is highly prospective for copper, and firms like Zijin are funding projects to bring them into production. They are likely to continue growing quickly.
Jones says this is his top pick of copper producers anywhere in the world, over the next decade.
We’ll see how this list of Chinese stocks to buy stacks up in 12 months. Each comes with significant risk – remember to do your own research!