Chinese stocks listed on U.S. exchanges received a boost yesterday after Commerce Secretary Wilbur Ross said Sunday that trade talks are "very far along" and making good progress, per Bloomberg. Ross also remarked that U.S. companies would "very shortly" receive licenses allowing them to sell components to Chinese telecommunications equipment firm Huawei Technologies. Earlier this year, President Donald Trump raised the possibility of easing restrictions on Huawei as part of a broader trade deal.
The positive comments come just two days after Washington and Beijing said that they had made progress in ongoing trade discussions, with U.S. officials hinting that a deal could be agreed upon shortly. "There is growing enthusiasm over a trade deal, as progress is being made in these talks," Peter Cardillo, a chief market economist at Spartan Capital Securities, told CNBC.
Those who want exposure to U.S.-listed Chinese stocks should consider adding these three large-cap tech-focused names to their watchlist. Each company has solid prospects for 2020 growth and should see further price gains if the world's two largest economies sign off on a mutually beneficial trade deal. Below, we look more closely at each issue and turn to the charts to find possible trading opportunities.
JD.com, Inc. (JD)
With a market capitalization of $ 48.15 billion, JD.com, Inc. (JD) operates as an e-commerce company and retail infrastructure service provider in China. In recent years, the firm has built its own nationwide fulfillment infrastructure and last-mile delivery network, which services its online direct sales and online marketplace businesses, helping to expand its global reach. In early 2018, the retailing giant raised $2.5 billion for its subsidiary JD Logistics. Earlier this year, the company said that the protracted trade war provided an excellent opportunity to reach down to quality domestic manufacturers. Analysts expect the company to post earnings per share (EPS) of 12 cents for the quarter ending September – up from two cents in the year-ago quarter. As of Nov. 5, 2019, JD.com stock has gained 58.24% year to date (YTD).
The e-tailer's share price has tracked sideways since April, with an ascending triangle forming within the range-bound action over the past three months. Price broke above the pattern's top trendline on reasonable volume in Monday's trading session, which may act as a catalyst for further buying in the coming days. Those who play the breakout should look for a move up to the $44 level, where price may run into a wall of resistance from a horizontal line. Manage risk by placing a stop-loss order just below $32 and raising it to the breakeven point if the price reaches intermediate resistance at $36.
NetEase, Inc. (NTES)
NetEase, Inc. (NTES) operates an interactive online community in China. The $39.38 billion company, which started life in 1997 as a leading online services provider, offers users online games, media, e-mail, and e-commerce. NetEase develops some of China's most popular mobile games and has forged partnerships with leading game developers, such as Blizzard Entertainment – a subsidary of Activision Blizzard, Inc. (ATVI) – and Mojang. Wall Street forecasts that the Chinese tech giant's third quarter (Q3) EPS to come in at $2.38, representing a bottom-line increase of 32% from the reported year-ago quarter. Trading at $307.72 and offering a 1.46% dividend yield, the stock has gained 31.68% on the year as of Nov. 5, 2019.
After falling by about 26% between April and August, NetEase shares promptly recovered above the 200-day simple moving average (SMA). The stock continued to gain momentum in October and has kicked off this month with an impressive breakout above a horizontal trendline extending back over the past two years. Traders who buy at current levels should look for a retest of the prominent December 2017 high at $371.65 and protect capital with a stop order positioned below horizontal support at $290.
Baidu, Inc. (BIDU)
Baidu, Inc. (BIDU) specializes in internet-related services and artificial intelligence (AI) in China as well as globally. The $38.21 billion Beijing-based search engine titan that many refer to as "China's Google" generates the lion's share of its revenues through marketing services, with the remainder coming from other activities such as subscription services. The company announced in September that it would invest $202 million in AI firm Neusoft Holdings to collaborate in sectors such as smart cities and health care, per Reuters. Baidu has fully embraced China's Communist Party goal of making the country a global leader in AI by 2030, making the stock particularly sensitive to technology-related trade deal developments. Analysts see the tech giant's full-year 2020 EPS growing 43% to $6.47. Baidu stock has slumped almost 31% YTD as of Nov. 5, 2019.
Baidu shares trended sharply lower from July 2018 to August this year. However, a possible inverse head and shoulders pattern that has formed over the past six months indicates that a bottom is in place. In another bullish development, price gapped above a seven-month downtrend line Monday – a move that could trigger additional upside. Traders who take a long position should think about setting a profit target between $130 and $135, where price encounters resistance from the May 17 earnings gap and 200-day SMA. Consider placing stops somewhere under the 50-day SMA to guard against a failed breakout.