You might think that the S&P500 is the only worthy candidate for your hard-earned capital, but think again. Actually, while S&P500 had a price return equal to 18.17% and a total return of 21.14% in 2017, the index was heavily outperformed by the emerging market index. This index rewarded its shareholder with an astonish year to year return of 30.23%. You might think that the difference between 21.14 and 30.23% isn’t that big, but the 9.1% difference is actually more than what investors should anticipate on earnings for a full year in the stock market.
What’s even more interesting is that even after this rally in Asian stocks, the fundamentals aren’t that crazy. The MSCI Emerging market index yields 2.28%, have a Price-to-earnings ratio of 15.45 and a forward Price to earnings ratio at 12.41. The MSCI World index is a lot more expensive with a P/E at 21.03 and a forward P/E at 16.00.
Within the MSCI Emerging market index, there is one country which really stands out, namely China. The country weight as much as 30.3% and hold 7 of the 10 top constituents in the index. The information technology sector greatly outweighs any other sector, and today, we are going to take a look at 3 Chinese companies you simply can’t ignore.
The first company is Tencent holding Ltd (OTCMKTS:TCEHY), a multinational conglomerate which is in many ways similar to Google. Tencent Holding Ltd operates within several hot trends, such as AI, e-commerce, machine learning, entertainment and anything that falls between internet of things. The company has a market cap of $580 billion and is the most valuable company in China. With sales increasing from 241 billion in 2017 to 338 billion in 2018, and EBIT from 79 billion (2017) to 102 billion (2018), it’s not hard to understand why 38 analysts rate the company as “outperform”.
Alibaba Group Holding
Alibaba Group Holding (NYSE:BABA) is another success story. Few had heard about Jack Ma, the founder of Alibaba, before he suddenly become known for being one of China’s richest men with a net worth of $41.3 billion. The reason for his wealth is that hi has been able to build one of the greatest and most disruptive companies known to man. Alibaba, which is the Chinese version of Amazon, crushes revenues estimates year after year. In 2017, sales were 158 273 M, but the estimates for 2018, 2019 and 2020 are 246 906 M, 342 808 and 444 931. Sure, the stock isn’t cheap anymore, trading at a P/E ratio close to 47.5, but forward P/E is 37 and if earnings keep on raising at this pace, the price might not seem so bad after all.
The last company which you can’t neglect is JD.com (NYSE:JD). JD.com operates in many ways in similar areas as both Amazon (NYSE: AMZ) and Alibaba, but the special thing about JD.COM is that it fully concentrates on E-commerce, while its competitors are heavily invested in many areas. This concentration of expertise has rewarded shareholders of JD.COM handsomely. After its IPO in 2014, JD.COM has returned 70% and continues to beat analytic estimates. As of now, 37 analytics follow the company and has given the company an outperform and a fair price at 333 NY, giving the stock a 15% spread to target price.
The author does not own any stocks that are mentioned in this article.