Chinese stocks have been dropping recently and finally fell into bear-market territory on June 29, closing down 3.3%. The Shanghai market fell an additional 3.5% on July 2 and has fallen over 24% so far from recent highs over the past two weeks as Chinese stocks have been under pressure after an explosion of margin buying over the past year.
The stock drop on Monday came as a bit of a surprise as investors hoped that the China central bank’s decision to cut interest rates by 0.25% would help lift China’s main stock market. This is not good news for investors, who have growing fears of a possible market bubble.
Zhang Gang, a senior analyst at Central China Securities, said of the fall, “Things don’t look settled at all and some institutional investors are still paring their positions. The monetary easing measures aren’t enough to more than offset the panic in the past two weeks.”
Although some Chinese companies such as Alibaba Group Holding Ltd (NYSE:BABA), Youku Tudou Inc (ADR) (NYSE:YOKU), and Baidu Inc (ADR) (NASDAQ:BIDU) are listed under other exchanges like the NASDAQ and New York Stock Exchange, one can’t help but wonder how the Chinese stocks will be impacted by the depletion of the Chinese stock market.
Alibaba Group Holding Ltd
Alibaba was all anyone could talk about during its highly coveted IPO in September 2014. The initial price of the stock started at $68 and reached as high as $119.15 in the following months.
The novelty of Alibaba did not last that long, however, as the stock has fallen over 24% in 2015 so far. The stock reached a high of $90.79 in the beginning of June just before China’s main stock market began to plummet. Alibaba has dropped 9% ever since.
However, Alibaba recently announced that it plans to sell its U.S. e-commerce website, 11 Main, to rival e-commerce website, OpenSky, in exchange for 37.6% equity ownership. Whether the Alibaba stock drop is due to the fall of the Chinese stock market or to the sale of 11 Main is unclear.
Five-star analyst Youssef Squali of Cantor Fitzgerald sees the sale of 11 Main as “either a sign of failure to get meaningful traction in U.S. ecommerce market, and/or a sign of Alibaba’s changing strategic priorities.” Nonetheless, Squali maintains a Buy rating on Alibaba with a price target of $110.
Overall, Youssef Squali has a 67% success rate recommending stocks and a +22.3% average return per recommendation.
It looks like all of Wall Street is Bullish on Alibaba despite the stock’s poor performance this year. Out of 19 analysts polled byTipRanks, all have bullish sentiments.
Youku Tudou Inc
Youku Tudou, the Chinese Internet streaming company, has put on a decent performance in 2015, jumping over 34% so far this year. The stock increase can be attributed to multiple reasons, including a solid second quarter revenue guidance, a licensing deal with Disney, and a possible acquisition by Alibaba.
Youku Tudou posted its first quarter earnings report in May that can be described as ‘okay’ at best. However, the company’s stock shot up after the earnings announcement due to its impressive second quarter guidance driven by its brand advertising and consumer businesses.
Four-star analyst Fawne Jiang of Brean Capital is encouraged by “the growth momentum of the company as YOKU continues to transform its business model, targeting multi-screen, building an entertainment and media ecosystem and seeking diversified revenue models.” She believes, “online video will be a key vertical for China Internet with substantial user reach.” Jiang currently has a Buy rating on Youku Tudou with a price target of $26.
Fawne Jiang currently has a 50% success rate recommending stocks and a +4.9% average return per recommendation.
Additionally in the beginning of June, the Chinese Internet company announced a partnership with Walt Disney to be the exclusive online movie marketing platform in China for its Marvel collection of movies and TV shows, sending shares up almost 5%. The following week, rumors began circulating that Alibaba may be interested in buying the Chinese online video website, sending shares up another 5%.
However, shares of Youku Tudou plummeted almost 10% on Friday, June 26 which can only be assumed is because of the drop of the Chinese stock market.
Out of four analysts polled by TipRanks, two analysts are bullish on Youku Tudou, one is bullish, and one is neutral.
Baidu Inc (ADR)
Baidu has not performed well so far in 2015, having fallen almost 10% since the beginning of January. The stock has been steadily decreasing as the company has posted mediocre earnings results.
The stock took another tumble when the stock fell almost 7% after four-star JP Morgan analyst Alex Yao downgraded his rating on Baidu in May from Buy to Neutral in light of the company’s weak first quarter earnings results and second quarter guidance.
On average, Alex Yao has a 44% success rate recommending stocks and a +12.3% average return per recommendation.
Now, Baidu has dropped almost 5% since June 24 as investors are shying away as the Chinese stock market continues to tumble.
Wall Street seems to have mixed reviews on Baidu. Out of 11 analysts polled by TipRanks, seven have bullish ratings on the stock while four analysts remain neutral.