Buy Baidu, Alibaba, And Tencent To Benefit From China's Online Boom

Nov. 16, 2018 10:10 AM ETBYDDF, BYDDY, BZUN, TCOM, BABA, BIDU, TCEHY13 Comments


  • Baidu - "The Google of China" and so much more.
  • Alibaba - "The Amazon of China" rapidly expanding in South Asia.
  • Tencent - "The Facebook of China" with a huge gaming business.
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This article first appeared on Trend Investing on October 15, 2018; therefore all data is as of that date.

The current negative sentiment especially in China provides an opportunity to make an entry into the so-called "BAT" stocks. The BAT acronym refers to Baidu Inc. (BIDU), Alibaba Group Holding Ltd. (BABA) and Tencent Holdings Ltd. [HK: 0700] (OTCPK:TCEHY), three of China's largest internet stocks often likened to Alphabet (GOOG) (GOOGL), Amazon (AMZN), and Facebook (FB).

Due to the US-China trade war, Chinese stocks have been heavily sold off (down 13-21% YTD depending on the index). The BAT stocks are currently all trading very near to their one-year lows despite a strongly growing internet economy in China. This allows investors an opportunity to buy in at reasonable prices. In the short term, the trade war dramas will determine if the BAT stock prices move higher or lower.

MSCI China All Shares and MSCI China A International Indices - As of September 28, 2018

Source: MSCI

China's internet is booming

China now has over 800 million internet users and is growing fast, as the huge Chinese middle class urbanize and modernize. Penetration is now at 57.7%, and 98% of them access the internet via a smartphone.


Given the penetration rate is now at ~58% in China there should be still room for at least 15 years of strong growth before they reach saturation levels similar to the US at 89% adoption rate (the US took from 2002 to 2018 to move from 58% to 89% penetration rate - 16 years). Additionally with 5G arriving as soon as 2019, consumers will come to rely on the internet (and hence spend online) more and more. The BAT stocks are the most likely to benefit from this in China, due to their enormous reach and market share dominance.

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