The Chinese equities playbook after the recent rally - Charts of the Week
BABA, JD, Meituan, Pop Mart, and other investment opportunities in 12 charts
"Charts of the Week" is Baiguan's series that features key data points to help you quickly grasp the general state of affairs in China in just a few minutes. We handpick the highlights of the data charts from a variety of sources, analyzing and delivering insights trusted by 100+ top institutional and corporate clients worldwide at BigOne Lab. Don't forget to subscribe before you continue reading!
The recent rally in the Chinese stock market took many by surprise. Chinese equities experienced a significant surge, with the MCHI index (iShares MSCI China ETF) gaining nearly 40% in just a few days following an unprecedented stimulus announcement on September 24. However, this "crazy bull" comes with significant volatility. The National Development and Reform Commission (NDRC) press conference on October 8 left many disappointed, leading to a market correction. Nevertheless, broader Chinese equities yielded ~20% increase since September 23.
So, what’s the playbook moving forward? How can investors capitalize on this recent surge in Chinese equities? Today, I’d like to share a few ideas supported by proprietary data from BigOne Lab, the parent company of Baiguan.
*Disclaimer: The views expressed here are my own and do not constitute specific investment advice.
The “Safe” Play: State-owned equities with PB < 1
Hoping to gain over 40% or even more in the Chinese market requires picking the right moment, which, in my opinion, is simply impossible. How many could have anticipated the announcement on September 24 and the exact scale of the stimulus package? The chance of predicting the market's next move—especially guessing the specifics of the stimulus package — is no greater than winning the lottery.
Engaging in short-term speculation can be exhilarating, but it’s not a prudent strategy for long-term investors. The real question now is whether Chinese equities are transitioning from speculative plays to genuine investment opportunities. Have they become "investable" now? Recent rallies have already brought many stock valuations back to reasonable levels, yet a clear shift in fundamentals—such as real estate recovery, job market stability, and domestic consumption—remains uncertain. Without a fundamental change in economic data, the current bull market will lack material support going forward.
But one thing is certain from recent government communications: there is a frank recognition of ongoing economic challenges and a clear determination to prioritize and support growth. However, some sectors and companies may have doubts about how much and how quickly this growth can occur—for instance, whether domestic consumption will drive the Chinese economy after the real estate sector ebbs and exports face limits, and when that will happen. This means that the scenario after September 24, where everything went into a crazy bull run, is unlikely to recur. This is not the time to “buy everything China.”
In this context, one “safe” play could be to focus on state-owned enterprises trading below a 1.0 price-to-book (PB) value. With the government’s determination to back core assets—such as state-owned banks, insurance firms, and industrial companies—these undervalued core assets could become a safe bet. It is in China’s interest to “do everything” to support these core assets.
To exemplify this idea, I’ve included a summary of state-owned enterprises (excluding loss-making firms) currently trading below 1.0 PB. High-dividend-paying core assets may offer a compelling option, especially as interest rates decline in China.
*The chart is originally prepared by Li Bei (and I translated), the founder of Banxia Investment, a macro hedge fund in China, in her recent blog. She also recommended two ETFs with major exposure to these equities: 931231.CS and 031233 (the Shanghai-Hong Kong Stock Connect equivalent) (This is something to consider, but I do not recommend any specific investment advice here.)
Some consumer discretionary names to consider
Some consumer discretionary names may see a seasonal boost as consumer sentiment improves following the strong National Day holiday.
Pop Mart (9992.HK)
Pop Mart (9992.HK) is a name we’ve mentioned multiple times in past newsletters. The company’s main product, “mystery boxes,” offers affordable fun that attracts many young Chinese consumers, who are now among the strongest consumer group as they currently don't have mortgage and family burdens. Additionally, the company has demonstrated impressive overseas expansion. (Notably, the stock did not experience any correction amid the broader decline in Chinese equities following the NDRC press conference on Oct 8.)
Our data insights: According to the in-store mobile payment data we track, Pop Mart's offline channel sales grew by 28% year-on-year. Based on guidance from management indicating over 60% year-on-year revenue growth for the full year, the current performance in the domestic market looks on track.
This post is sponsored by BigOne Lab, our parent company. BigOne Lab proudly announces the introduction of the China Mobile Payment dataset, covering high-frequency offline sale performance of brands such as LULU, Hermes, LV, Starbucks, POP MART, Miniso sportswear, luxury, coffee and tea chains, and specialty retail sectors that were previously undercovered by data. If you are interested in subscribing, please contact more@bigonelab.com
Home appliances
China's efforts to boost domestic consumption through measures like home appliance trade-in programs and cash vouchers are starting to pay off. Benefiting from home appliance trade-in programs, China's State Taxation Administration reported that during the National Day holiday, sales of household appliances and audiovisual equipment saw a massive 149.1% increase.
Our data insights: According to BigOne Lab, since the implementation of the home appliance subsidy policy, the topic has maintained exceptionally high interest on Chinese internet, with an average daily discussion volume exceeding 60,000 related posts since the policy's official release.
Since the subsidy program was introduced, the average daily growth rates in public opinion volume for Hisense (000921.SZ), Supor (002032.SZ), and Haier (600690.SS) have been notably high at 91%, 72%, and 62%, respectively. Among the top-ranking home appliance brands in terms of public opinion volume, the majority are brands that primarily offer large home appliances. This is mainly because the subsidy provides significant support, with higher absolute amounts for high-priced appliances such as air conditioners, refrigerators, and televisions, making them the main targets for consumption. Brands with substantial advantages in these subcategories are more likely to benefit.
*BigOne uses sentiment data from platforms like Red, Douyin, Weibo, and WeChat to track social engagement trends, new product launches, and current hot topics for over 6000 brands. Through social media hotness alerts, sentiment tendency analysis, or sales data linkage corroboration, BigOne visualizes the application of social media data in research and conveys the latest insights to investors.
Skincare & beauty: the "Double-11" annual e-commerce sales
"Double-11" is China’s annual e-commerce sales event, and this year, it began on October 14, marking the longest Double-11 in history. The beauty industry has consistently been a driving force during this event, receiving enthusiastic support from consumers. According to public data from Tmall, within the first 30 minutes of the pre-sale opening, 20 personal care and beauty brands surpassed the 100 million yuan mark.
Our data insights: Breaking it down by brand, the domestic brands PROYA (603605.SS) and Comfy (a GIANT BIOGENE 2367.HK brand) saw high sequential growth in public opinion volume. Estée Lauder (NYSE: EL) is expected to use the Double 11 event to turn around its sales in China.
Looking at the sales data, PROYA once again topped the first-day pre-sale transaction amounts, followed by L'Oréal, SkinCeuticals, and Comfy. Comfy saw a significant improvement in its ranking, with its flagship collagen product becoming the first single item to surpass 100 million yuan, selling over 200,000 units in just 10 minutes.
Internet: still room for valuation recovery
China's internet companies remain undervalued and are among the most profitable companies, even after the recent rally. The correction following October 8 may present a good buying opportunity for long-term. For instance, JD’s forward P/E ratio is 10.36 at the time of writing, compared to a median P/E of 40.2 over the past five years. Similarly, BABA’s forward P/E is 11.65 versus 25.08, and PDD stands at 10.48 compared to 23.21.
Continue reading for updates on Chinese internet companies (JD, BABA, Meituan, Kuaishou, Beke) and the education industry (TAL), which I believe present great opportunities. To get a sense of what is offered, you are welcome to check out this older post in the same series: Charts of the Week. You can also get free access by sharing us.