Hi YXI friends,

To say that the Chinese stock market took off last month is an understatement. After a host of monetary and fiscal stimulus measures, China’s Shanghai Stock Exchange Index (SSE) shot up 25% in just 10 days on explosive volumes. The Chinese government seemed to have timed the sentiment perfectly just after the Fed’s 50bp cut, but ahead of the October 1st National Holiday.

Has a secular bull market started? It may be too early to tell after less than 2 weeks. But take a look at the SSE chart below:

Shanghai Stock Exchange Index Monthly (https://www.tradingview.com/x/n0BvN5sS/)

It’s been 17 years since the SSE made a new high, and 9 years since it was above 4000. That is a long consolidation period given China’s GDP has grown five-fold since 2007. Maybe it’s about time to break out?

Today, we are going to review the valuation comparisons between a list of US-listed Chinese companies that may benefit from China’s liquidity injection in current easing cycle.

In September, many of these names rose by over 30%, reverting the previously negative 1-year returns. What a difference just two weeks could make.

Our next article, Part 2, will focus on the technical analysis of each individual stock as well as KWEB and FXI.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. The List

It’s not an exhaustive list, but a good starting point that cover many reputable Chinese companies.

When we do the technical analysis, we will go through the names in different groups (e.g. EVs, ECommerce, Entertainment etc). For the purpose of today’s article, we will look at everything together.

In terms of market capitalisation, BABA is the largest, while PDD is closely behind. JD, NTES, BIDU are much smaller in size despite them being just as well known.

2. EV/ Revenue vs. TTM Revenue Growth

PDD is the clear growth winner within the Chinese cohort, with its revenue more than doubling in the past year. PDD is the Ecommerce platform that owns TEMU, which many of us likely have come across in the US or Europe. TEMU is a direct-to-consumer mobile app selling exceptionally cheap products shipped directly from China.

LI, EPEV, and NIO are Chinese Electrical Vehicle companies that compete with Tesla. They suffer a valuation discount because their profit margins are low or negative. Moreover, in terms of policy, both the US and EU are imposing tariffs on EVs imported from China.

EDU is a former education company that turned into a live-stream product selling platform, after the Chinese government banned after school tutoring in 2021. And they are doing rather well in the new field, growing 44% in the past year.

3. EV/ NTM Revenue vs. 2Y Forward Growth

Subscribe to YX Premium to read the rest.