Chinese stocks have underperformed of late. Despite an early bounce in 2023, many of the top U.S.-listed Chinese stocks have since declined. And while the China reopening thesis remains strong, there are clear reasons why this is the case.

Following the pandemic, the Chinese Communist Party showcased its power once again, shutting down the entire economy. This came following a high-profile crackdown on the Chinese tech sector, which crippled many of the top U.S.-listed Chinese stocks.

That said, this tech crackdown has subsided, and Covid restrictions have been lifted. Thus, there’s certainly the potential for more substantial growth in 2023. For a while, it took time to create a watch list of the most promising Chinese stocks to invest in. However, the situation is changing, and more Chinese companies are emerging as potential investments. As such, I have identified three Chinese stocks that are worth considering.

Alibaba (BABA)

Alibaba (NYSE:BABA) is a leading e-commerce stock in China that has been drawing comparisons to Amazon (NASDAQ:AMZN), thanks to its core e-commerce operations and expanding cloud business. In the 2022 fiscal year, Alibaba managed over $1 trillion in transactions for about 900 e-commerce clients. Additionally, the Alibaba Cloud is the most significant player in China, holding a 37% market share.

Alibaba has been busy lately with several noteworthy developments. In addition to its ongoing focus on AI, the company has made some unconventional business decisions. For example, it recently announced plans to divide its $220 billion enterprise into six separate units, each dedicated to its e-commerce, media, and cloud operations. Once split, these divisions could pursue their initial public offerings (IPOs). The company is also set to release its earnings report on May 25.

According to Alibaba CEO Daniel Zhang, this move represents a new growth opportunity for the 24-year-old company. By allowing each business group to engage in independent fundraising and IPOs as needed, Alibaba hopes to remain competitive in the market.

Alibaba represents a promising investment opportunity, given China’s substantial market size and population. The value of China’s e-commerce market becomes more apparent when considering the numbers. With China’s reopening, Alibaba’s revenue prospects are looking up, and growth is expected to be robust. Furthermore, as China continues to increase its global presence, Alibaba’s growth prospects are likely to strengthen further.

Baidu (BIDU)

Recently, Baidu (NASDAQ:BIDU), a primary Chinese provider of internet-based services and products, has gained the attention of stock market analysts. According to Bloomberg, 19 brokerages covering BIDU’s stock have given amoderate buy consensus recommendation. Most experts believe Baidu is well-positioned for growth and will likely yield favorable returns for investors.

While Alibaba is a clear choice when investing in Chinese stocks, Baidu may be a more prudent investment option. Unlike Alibaba, Baidu has faced relatively limited regulatory pressure from the Chinese government. Moreover, Baidu is also investing in AI development, similar to Alibaba, with a focus on self-driving capabilities for EVs.

Often referred to as the “Google of China,” Baidu’s popularity is augmented by the fact that Google is not accessible in China. As the sixth most widely used website globally, Baidu has a significant advantage and could integrate AI into its search platform and autonomous driving division.

Based on market trends and expert analysis, Baidu seems in a good position for long-term success. Investors who seek steady growth opportunities in China should consider adding BIDU to their portfolios as a part of a diversified investment plan.

Nio (NIO)

Rounding out this list of Chinese stocks to buy is Nio (NYSE:NIO), a major Chinese producer of electric vehicles. The company has achieved remarkable success during the pandemic. However, the supply chain hurdles and lockdown-related challenges that followed caused a meaningful decline in its growth.

That said, there are reasons why I think this stock is poised for long-term growth. One of these reasons is the company’s expansion into Europe. The company’s new factory in Europe is expected to produce much more affordable electric vehicles. Success in this new venture will likely affect the company’s stock price. However, due to decreased government subsidies, Nio also needs help in China’s saturated high-end EV market. Nevertheless, Nio is determined to establish itself as a leading player in the EV industry and is exploring ways to expand its business.

As of April 19, PandaForecast‘s price prediction model showed that Nio’s weighted average target price per share is expected to be $9.85 in May 2023. Market analysts also anticipate that Nio shares will exhibit mostly bullish momentum trading, with a predicted monthly volatility of 16.2%. The target levels for momentum trading range from an optimistic $10.75 to a pessimistic $9.01.

Nio’s status as one of China’s most extensive pure-play EV stocks may provide some flexibility with government regulations. If the EV industry requires intervention, Nio will likely receive support from the Chinese government as the country seeks to boost its economic prospects.

On the date of publication, Chris MacDonald had a position in BABA, BIDU. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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