China’s stock market corrected 15 pct from its top on January 22nd 2018 till its lowest point end of April. If anything, we have observed that large caps stocks in China, represented by FXI ETF (FXI), have done quite well, much better than their peers. That is also what we reported when we wrote China’s Large Cap Bull Market Of 2018 in the first week of 2018.
China has tested its lows of the year last week. Obviously, this price level must hold to avoid a tactical bear market in China. We would exclude a secular bear market because the conditions favor emerging markets (EEM) right now … we cannot imagine that emerging markets would be in a secular bull market while China moves in a secular bear market, that’s hardly possible.
Provided that China goes higher from here, or, worst case, continues to consolidate above 3,000 points, we believe there are several opportunities in the large cap segment. More specifically, large internet stocks in China look very enticing. We have identified 2 Chinese internet stocks with great potential in 2018 and beyond.
2 large cap Chinese internet stocks for 2018 and beyond
The first Chinese internet stock is BAIDU, a giant with a market cap of $86B. It reported solid revenue growth against a year ago, and an amazing profits growth (EBITDA).
The chart of Baidu, symbol BIDU, looks very enticing. It has this typical rounded bottom formation which gives a high probability of a breakout. If, and that is a big IF, the breakout materializes, above its $265 all-time highs, we are looking at an upside target of $455, an upside potential of 70 pct.
However, there is a bearish case to be made as well: if the breakout does not take place, but, instead, this stock breaks down below its rounded bottom formation, then we would not exclude a retest of its support level at $125.
Smart investors watch closely the resistance zone of 250 – 280 for a strong, secular breakout.
The second internet play in China in the large cap segment is JD.com (symbol JD). It comes with quarterly earnings on May 8th so it may become a volatile week for this stock.
JD has a market cap of $58B. It has shown an amazing growth in recent years, and it seems that growht is not ending. More so, we see continuous innovation as JD is very active in artificial intelligence, blockchain, and the likes.
The chart of JD shows that it trades at secular support, see the light blue bar on the next chart. If, and that is a big IF, support levels hold well then we expect the bullish case to materialize, in which case we expect upside potential to at least $70 (double of current prices). If support breaks to the downside then we expect a tactical bear market in JD which will result in a bullish setup at a later point in time.