3 Chinese stocks to avoid


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Things seem to be getting worse in China. In recent months, Chinese President Xi Jinping has consolidated his grip on power. He pledged to return the Chinese economy to its socialist roots and away from the free-market path it was on. This follows more than a year of a crackdown on listed Chinese companies, including tech companies, which have eroded stock prices.

In addition to the policy retreat, China continues to implement widespread lockdowns and manufacturing shutdowns as part of its zero-Covid policy. This is slowing the world’s second-largest economy and eroding consumer spending in this country of 1.4 billion people. And that’s to say nothing of the ongoing economic warfare that’s not being so quietly fought between China and the United States.

The White House recently decided to limit the exposure of American semiconductor companies in China. And Wall Street regulators have threatened to delist Chinese stocks that trade on US exchanges. There are growing calls to ban Chinese social media app TikTok, and it looks like it’s not a market sector you want to be in.

In particular, here are three Chinese stocks to avoid.

Alibaba (BABA)

A photo of the Alibaba (BABA) app on a smartphone.

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There are professional traders and analysts on Wall Street who have said Ali Baba (NYSE:BABA) is the only Chinese stock that US investors should own. While that may have been true at one time, it certainly isn’t today. The e-commerce company founded and run by Jack Ma is often referred to as Amazon (NASDAQ:AMZN) from China. But the fortunes of the two companies have diverged sharply since the pandemic.

Alibaba has faced a brutal regulatory crackdown from Chinese authorities. The company saw its expansion plans crushed, hit with a record $2.8 billion antitrust fine, and Ma even went into hiding for a time. Add in the Covid-19 lockdowns and falling consumer spending across China, and BABA’s stock has fallen 41% this year. And it’s down almost 80% from its all-time high of around $320 per share, reached in October 2020. Over the past five years, stocks are down 62%. For comparison, AMZN stock is up 78% during this time.

Investors who own Alibaba shares should sell them. Those who don’t should put BABA on their list of Chinese stocks to avoid.

Nio (NIO)

NIO ES6 electric SUV semi-autonomous car on display near Chinese automaker NIO's software development office in Silicon Valley.  Chinese electric vehicle companies like NIO are making headlines.

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Next on our list of Chinese stocks to avoid is the electric vehicle maker Nio (NYSE:NIO). Hailed as China’s response to You’re here (NASDAQ:TSLA) and a future global leader in electric vehicles, NIO stock has come a long way. Its stock price rose 3,000% from a low of $2.11 per share in March 2020 to an all-time high of just under $67 in January 2021.

My how the mighty have fallen. Stocks are 83% below their peak and down 70% in the past year, with no bottom in sight.

The issues with NIO’s stock can largely be attributed to missed production and delivery targets that resulted from the Covid-19 lockdowns. Ongoing shutdowns in and around Shanghai have led Nio to close its manufacturing facilities multiple times. This has hurt sales and curtailed the company’s global expansion plans, mainly in Europe, where Nio established a partition last year.

Other issues included the deaths of two people who were killed in one of the company’s test vehicles and a lawsuit by its rival volkswagen (OTCMKTS:VWAGY) Audi Division regarding alleged trademark infringement.

All of these issues should continue to weigh on NIO stock. I wouldn’t go near it.

Baidu (BIDU)

A Baidu (BIDU) sign outside a company office in Shenzhen, China.

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Finally, we come to the company that many consider to be China’s Google, the Internet and artificial intelligence giant. Baidu (NASDAQ:BIDU). Not so long ago, Baidu was hailed as the most sophisticated and advanced technology company in China. The company’s stock price rose 287% from its pandemic low to a high of just under $355 in February 2021. Prospects for future growth seemed limitless. Some euphoric analysts even predicted that Baidu’s online search engine would surpass Google and its AI applications would change life as we know it.

Not so fast, however. Step into Beijing’s crackdown on tech companies, Covid-19 lockdowns, a slowing economy and deteriorating sentiment among US investors, and BIDU stock has fallen 75% from its peak, including a 40% drop since the start of the year. Over the past five years, stocks have fallen 48%. For comparison, Google parent Alphabet (NASDAQ:GOOGL) increased by 80% during this period.

The big plunge in BIDU shares shows no signs of reversing anytime soon. Investors who might be tempted to buy the dip should think twice and add this name to your list of Chinese stocks to avoid instead.

As of the date of publication, Joel Baglole had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a reporter for the Wall Street Journal and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.


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