Chinese stocks, like their U.S. counterparts, hit the ground running in the first four months of 2019 amid hopes of a mutually beneficial trade deal between the United States and China. Things unraveled in May when trade tensions erupted between the two economic superpowers that resulted in both countries imposing a raft of new tariffs on each other.
China's finance ministry said Monday that it planned to ease restrictions on how the proceeds from special-purpose local government bonds were spent and encourage banks to offer loans to projects funded by such debt. The People's Bank of China hopes that the economic stimulus will offset U.S. President Donald Trump's threat of additional tariffs by boosting infrastructure investment. China's Shanghai Composite Index (000001.SS) climbed 2.6% – its biggest one-day gain since May 10 – after the ministry announced the latest measure to kickstart the world's second largest economy.
Traders who want exposure to China's economy should monitor these three large-cap Chinese companies listed on U.S. exchanges. Although these stocks remain highly sensitive to ongoing trade negotiations, they also stand to benefit from China's extensive stimulus initiatives. Let's take a closer look at each issue and its chart.
Alibaba Group Holding Limited (BABA)
Alibaba Group Holding Limited (BABA) provides online and mobile commerce businesses in China as well as internationally. It operates through four business segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives. The e-commerce conglomerate reported fiscal fourth quarter earnings per share (EPS) of $1.28, representing a bottom-line increase of 40.7% from the year-ago quarter. Revenue increased 51% on a year-over-year (YoY) basis, driven by strength in the company's China commerce retail business, the consolidation of Ele.me, and robust sales growth of Alibaba Cloud. Alibaba Group stock has a massive $423.46 billion market capitalization and returned 16.62% year to date (YTD) as of June 12, 2019, roughly in line with the Shanghai index's 16.66% return over the same period.
A classic double bottom pattern that formed in the fourth quarter of 2018 stands out on Alibaba's chart. The stock's price continued higher for several months after breaking above the pattern's neckline in January but fell away in May as renewed U.S.-China trade tensions heated up. In early June, the price found support from a horizontal line connecting previous price action over the past nine months. Furthermore, a recent cross of the moving average convergence divergence (MACD) line above the signal line indicates ongoing upside momentum. Those who take a trade should position a stop under the June 7 low at $152.21 and set a take-profit order near major resistance at $190.
Baidu, Inc. (BIDU)
Headquartered in Beijing, Baidu, Inc. (BIDU) provides internet search services in China and globally. Although China's largest search engine saw its first quarter earnings decrease by 84.2% from a year ago, significant spending on traffic acquisition costs, content, and new growth initiatives has led to mixed bottom-line results over recent quarters. Revenue jumped 8% over the period, driven by strength in education, retail, and business services – a division that accounts for 82% of the company's total revenues. Analysts have an average 12-month price target on the stock at $209.15 – 81% above Tuesday's $115.37 closing price. Baidu shares have fallen 27.26% for the year, underperforming the internet content and information industry average by an enormous 40.62% as of June 12, 2019.
Baidu shareholders have suffered pain since July 2018, with the share price trending sharply lower over most of that period. Even when global stock markets posted solid gains on hopes of a trade deal between Washington and Beijing, the stock only managed to track sideways. Baidu shares continued lower for several weeks after disappointing quarterly earnings in mid-May but have moved higher to kick off June. A recent bullish MACD cross confirms the stock's upside direction, suggesting that investors may have factored in the earnings disappointment. Traders who go long here should aim to book profits on a test of the earnings gap high at $134.13 while protecting their downside with a stop beneath the June 7 low at $109.03.
JD.com, Inc. (JD)
JD.com, Inc. (JD) operates as an e-commerce company and retail infrastructure service provider in China. The $40.83 billion e-tailer, which many compare to tech titan Amazon.com, Inc. (AMZN), has built its own nationwide fulfillment infrastructure and last-mile delivery network that supports its various online businesses. JD.com posted stellar first quarter results, registering EPS of 33 cents, while revenue came in at just over $18 billion, to deliver top- and bottom-line YoY growth of 230% and 13%, respectively. The stock currently trades at $28 and has an impressive 30.24% YTD return as of June 12, 2019.
A cup and handle pattern has formed on the JD.com chart over the past 10 months, indicating upside continuation. The price found support at the handle's lower trendline and 200-day simple moving average (SMA) in late May and has since rallied toward resistance at the $29 level. Traders should consider buying the stock on a convincing close above the handle's top trendline. Set a profit target by measuring the distance of the cup and adding it to the breakout point of the handle. For example, the height of the cup is roughly 12 points; therefore, add $12 to the breakout point at $29, which places the profit target at $41. Cut losses if the price closes beneath the pattern's handle.