We recently published a list of 7 Cheap Chinese Stocks To Invest In Now. In this article, we are going to take a look at where Qifu Technology (NASDAQ:QFIN) stands against the other cheap Chinese stocks to invest in now.
The Economy of China
According to a report by the International Monetary Fund (IMF), China’s economy is projected to grow by 5% in 2024 and 4.5% in 2025, which is an upward revision of 0.4 percentage points for both years compared to the April projections. This growth is driven by strong Q1 GDP data and recent policy measures. However, risks are tilted to the downside due to a greater and longer-than-expected property sector adjustment and increasing fragmentation pressures.
In terms of inflation, the IMF expects core inflation to rise but remain low, with core inflation increasing only gradually to 1% in 2024. Over the medium term, growth is expected to decelerate to 3.3% by 2029 due to ageing and slower productivity growth.
China’s economy is facing challenges due to weak consumer spending amid economic issues such as a prolonged housing slump and high youth unemployment. Chinese tech firms are increasingly focusing on artificial intelligence (AI) as a potential new revenue stream. However, intense global competition limits the effectiveness of this approach.
The Chinese government needs to implement policies that restore consumer confidence and boost spending. In the second quarter of 2023, foreign investors pulled nearly $15 billion out of China due to the slowdown in economic growth and rising geopolitical tensions. The rapid shift towards electric vehicles in China has also caught some foreign car manufacturers off guard, leading them to scale back or withdraw their investments. China’s balance of payments has turned negative. If this trend continues, it could result in the first annual net outflow of foreign investment since 1990.
Despite efforts by the Chinese government to attract and retain foreign investment, such as lowering interest rates and encouraging the inflow of advanced technologies, foreign direct investment into China during the first half of the year was the lowest since the pandemic began in 2020. Chinese companies have been increasing their outbound investments, particularly in projects such as electric vehicles and battery factories, sending a record $71 billion overseas in the second quarter of 2023, up more than 80% compared to the same period in the previous year.
A Closer Look at China’s Investment Trends
Billionaire investor David Tepper, founder of Appaloosa Management, believes that Chinese stocks are undervalued, particularly compared to U.S. stocks, with many Chinese companies having single-digit P/E ratios despite high growth rates. Tepper expresses optimism about China’s economic measures, emphasizing that the Chinese government is actively promoting consumption and taking aggressive steps that investors have long called for. In his view, China’s internal fiscal stimulus is a major driver for growth, downplaying external risks such as tariffs and focusing on how these actions could benefit the country’s economy and related markets, such as Japan and South Korea. He points out that other major economies, such as Europe and Japan, are also lowering rates, but China’s measures seem more aggressive and promising, especially for investors.
Timothy Moe, Chief Asia Pacific Equity Strategist at Goldman Sachs, has an optimistic outlook for the APAC equity markets amid recent volatility. Regarding China, Moe points out its weaker performance relative to other APAC markets but notes its diversification benefits. He stresses the need for more policy support from Chinese authorities to boost domestic demand and economic growth. Moe is strategically positive on China’s A-shares due to their potential benefit from structural market developments but prefers offshore Chinese equities in the short term. Looking ahead, he forecasts a 12% earnings growth for the APAC region in 2025, slightly below consensus expectations.
China’s economic growth is expected to slow down in the coming years, with projected growth rates of 5% in 2024 and 4.5% in 2025. Despite efforts by the government to stimulate growth, the economy is facing challenges such as weak consumer spending, a prolonged housing slump, and high youth unemployment.
Our Methodology
To compile our list of 7 cheap Chinese stocks to invest in now, we used Yahoo and Finviz stock screeners to compile an initial list of 40 Chinese companies. From that list, we screened for companies that are trading at a forward P/E ratio of under 15 as of September 29. We then narrowed our choices to 7 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a loan contract being signed with a satisfied customer.
Qifu Technology (NASDAQ:QFIN)
Number of Hedge Fund Investors: 21
Forward P/E Ratio as of September 29: 5.72
Qifu Technology (NASDAQ:QFIN), formerly known as 360 DigiTech, is a data-driven digital platform that enables financial institutions to provide better and targeted products and services to a broader consumer base. The company also offers standardized risk management services in the form of software-as-a-service (SaaS) modules to institutional clients. Qifu Technology (NASDAQ:QFIN) primarily offers credit solutions in the form of loans to consumers and small businesses in China.
Qifu Technology (NASDAQ:QFIN) has strong earnings growth prospects, driven by its ability to improve asset quality and reduce operating costs. In Q2, the company’s net income increased 23% year-over-year, driven by a significant provision write-back and lower operating costs. This improvement in earnings is expected to continue in the third quarter, with the company guiding for normalized earnings growth of 36% year-over-year. Qifu Technology (NASDAQ:QFIN) management has also indicated that it expects additional provision write-backs in the coming quarters, driven by improving asset quality.
Qifu Technology (NASDAQ:QFIN) has a strong track record of growth and profitability. The company offers an attractive shareholder yield and has a potential FY 2024 buyback yield of 9.5%, driven by its ongoing share repurchase program. The company has already executed on 60% of its one-year $350 million buyback plan, and its management has indicated that it intends to sustain a “very active pace” of share repurchases. Furthermore, the company’s forward FY 2024 dividend yield is 5.7%, providing investors with a regular stream of income. The combination of the buyback yield and dividend yield results in a potential FY 2024 shareholder yield of 15.2%.
Qifu Technology (NASDAQ:QFIN) has a forward P/E ratio of 5.72, which represents a 52% discount compared to the sector median of 11.93. The company’s earnings are expected to grow by 31.34% this year. Industry analysts have a consensus Buy rating on the stock, with an average share price target of $29.58, indicating a potential upside of 3.5% from its current levels.
As of the second quarter, 21 hedge funds held stakes in the company worth $319.22 million. According to Insider Monkey’s hedge fund database, OLP Capital is the largest shareholder in the company and owns stock valued at $141.19 million as of June 30.
Overall QFIN ranks 5th on our list of cheap Chinese stocks to invest in now. While we acknowledge the potential of QFIN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than QFIN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.