The tension of China and the U.S. trade war is painting a passive picture to both China market and America listed Chinese stocks. While the uncertainty of trade war continue to linger, don’t be so fast to draw the same “sell” picture to all Chinese stocks as you might lose your biggest opportunity if you do.
Many Chinese stocks are impacted by gloomy economic outlook, decreased advertisement revenue, tightened government policy. Large capital stocks such as Alibaba, Tencent, Baidu and Weibo are all in a incredibly lowered stock price. Question is if they are cheap, or simply lowered price.
China has long posted fast growth in the past 2 decades. Its GDP has grown from $1 trillion to $10 trillion. It is understandable that no such high growth is sustainable forever. The slowing down of the growth coupled with the influence of macroeconomic and geopolitical developments have the investors significantly worried.
But this maybe is a good thing. With so many investors unhappy with China, share prices have leveled off and, in many cases, become attractive. It still might not the time for your fishing bottom, but there are Chinese stocks that are simply own bright perspectives with cheap prices. If you don’t have some of them in your portfolio, now is the time to at least pick one.
I want to particular talk about one stock, TME (Tencent Music Entertainment)
I like these stocks mainly because the companies cater directly to Chinese consumers.
China has long been considered hard to stimulate spending. The culture of saving in the past decades was driven by the sense of insecurity in health care and retirement. Because of strong government support for health and pension programs and growing confidence about the future, Chinese families no longer see a large savings buffer as a necessity. With new generation taking over workforce and consumption population, Chinese consumers are perking up. Rather than relying on international trade, China company start shifting its focus to its own large scale and growth base.
There are many skeptical thoughts around China given the negativity in the news. However, if we take a closer look. China runs the country is similar to a company, at the micro level, there are strong freedom and empowerment, but at macro level, there is a top down policy that all level executes. While we can argue if it is a better structure, but this combination of capitalism and socialism allow China to run the business and to get guidance implemented at the same time.
TME stock performance has been solid
Since IPO, TME stock has remained around 40-50 PE ratio with a narrowly moved price range. Its steady volume also allows its accumulation of the demand.
TME has focused on a few key priorities among which increase social media focus and user engagement are effectively driving subscription growth. Piracy has long been a concern in Chinese market copyright discussion. China’s crackdown of piracy market has moved subscription demand to TME.
TME has leverage celebrity to promote its show business growth and start engaging audience in real-life discussion and foster a connection between host and audences to drive the user engagement. Social media engagement are much more “social” and “real-time” to bring users attention to the channel.
The expanding fan bases for these shows have helped TME showcase new talents to millions of viewers. Artists can use TME’s platform to promote their talent, resulting in incremental revenue.
Its monthly active users reached 225 million is 72% of revenue with paying users totaled ~10.8 million. To continue its growth of social media base will continue to translate into subscription revenues.
Strong Market Growth
Tencent Music Entertainment (TME) has an expanding total addressable market. The music streaming market in China is estimated to grow from $1.14 billion in 2018 to $6.27 billion in 2023, according to iResearch.
Tecent owns majority of mobile game revenue deveoped in recent couple of years. Right now, China music market is still very fragmented. The top 5 labels in China have less than one third of the market share as compared to 85% globally. While it will take time to reach to a good subscription base, it also presents a strong opportunity for big player like TME to consolidate the market and stand out.
Last but not least
When I watch a stock for investment, I tend to focus on the growth and future aspect of the financials. TME, however, is a already on its winning streak with great ROI. The undervalue is driven by overall market sentiment towards Chinese market. As old saying, when there is a risk, there lies an opportunity.
Simple Wealth For Women is a blogging website focusing on financial discussions. I help women to crush debt, learn how to invest and make more money. I show you simple approach and provide you with specific ideas to help you get to financial freedom and build an amazing life.
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