On August 15th local time, popular Chinese concept stocks on the US stock market generally rose, with the NASDAQ Golden Dragon China Index up by 1.72%. JD.com's stock price increased by over 4%, and VIP.com's by over 3%. NIO, NetEase, and Baidu all saw gains exceeding 2%.

Despite a generally weak overall trend in the first half of the year, several Chinese concept stocks have shown signs of rebound in the second half. Since July, BeiGene and Alibaba have seen increases of 30.86% and 10.38% respectively; stocks like Sohu, Pinduoduo, Ke Holdings, and Li Auto have all rebounded by more than 5%.

What factors are boosting the rebound of Chinese concept stocks? Is this trend due to a general market recovery, or is it more based on individual company performances? Let's hear the analysis from Kong Rong, Co-Dean of the Global Forward-Looking Industry Research Institute at Tianfeng.

Outstanding Financial Performance of Chinese Concept Companies

Advertisement

Kong Rong: Since July, the rebound of Chinese concept stocks has been mainly influenced by two factors. First, the improvement in the expectation of interest rate cuts in the US stock market has benefited related stocks, especially small-cap US stocks and Chinese concept stocks with low valuations and outstanding cost-performance ratios. Second, looking at this earnings season, whether it's Tencent, Alibaba, or JD.com, especially several large internet platforms, they have all demonstrated strong profitability resilience. Under the current market environment, most companies have performed well in their financial reports, showing a positive trend in terms of future profit release and business cycles.

So, the recovery since July is due to the change in external liquidity bringing a rebound in undervalued Chinese concept stocks, and the core reason is the repair of the profitability of the entire internet industry and related Chinese concept stocks.

In the second quarter financial reports, Chinese internet companies have shown relatively impressive profit performances. Currently, it can be seen that the pace of profit release by platform companies is accelerating, and the visibility for the next few quarters is also gradually increasing.

Specifically, in the financial reports announced this time, Tencent's profit release in the second quarter was very impressive. In addition, even in the fiercely competitive e-commerce environment, JD.com's profit performance still exceeded market expectations. Although Alibaba faces certain pressures, it is still worth looking forward to in terms of business stability and future visibility. Therefore, the performance of these representative Chinese internet companies has boosted market confidence in this financial report.

Chinese Concept Stocks to Benefit from Improved External Liquidity

Kong Rong: Looking at the global market, the valuation of US stocks has increased significantly over the past two years. Compared with other peripheral markets, the valuation cost-performance ratio of Chinese assets is actually very high. Therefore, in the future, Hong Kong stocks and Chinese concept stocks, as value lowlands, will benefit very effectively from the improvement of external liquidity.On August 15th, Alibaba and JD.com respectively released their latest financial report data.

JD.com's financial report indicates that the second quarter revenue reached 291.4 billion yuan, a year-on-year increase of 1.2%, with the first half of the year's revenue amounting to 551.4 billion yuan. In the second quarter, JD.com Group's net profit attributable to ordinary shareholders of listed companies under non-GAAP (Generally Accepted Accounting Principles) reached 14.5 billion yuan, a year-on-year increase of 69.0%, with the net profit margin hitting 5.0% for the first time.

In contrast, Alibaba achieved a revenue of 243.236 billion yuan in the first fiscal quarter of the fiscal year 2025, a year-on-year increase of 4%. However, the operating profit decreased by 15% year-on-year; the net profit attributable to ordinary shareholders was 24.269 billion yuan; and the net profit was 24.022 billion yuan, a decrease of 27% year-on-year.

For related interpretations, let's connect with Yang Delong, the Chief Economist at Qianhai Open Source Fund.

Yang Delong: Looking at the semi-annual financial reports published by these Chinese concept stock technology giants, there has been a certain growth, but the growth rate is not high. The slowdown in macroeconomic growth has had a certain impact on the revenue of Chinese concept technology stocks, and there has also been some fluctuation in profits.

Overall, China's monetary policy is continuously intensifying, and fiscal policy will continue to exert effort in the second half of the year. The strength of economic recovery is expected to improve in the second half. Recently, the National Development and Reform Commission proposed to promote high-quality development of consumption, and various measures will also be taken to stimulate consumption.

I believe that the most fundamental way to boost consumption is to increase the employment rate of residents and improve the income level of residents, including wage income and property income. Therefore, stabilizing the real estate market and boosting the stock market are of great significance for boosting consumer spending. After consumption is improved, it is expected that the profit growth of technology internet companies related to consumption will be enhanced. Given that most of the profits of these technology internet companies come from the growth of consumption, and it is online consumption.

According to the data released by the National Bureau of Statistics for the first seven months, the growth of China's total retail sales of consumer goods is relatively low, around 3% to 4%, but online consumption is close to 10%. These internet companies have a more obvious advantage in their business model, and their overall performance growth is expected to maintain a good trend in the future.

Chinese concept stocks have investment appeal in valuation.

Global Financial Connection: What challenges and opportunities might Chinese concept stock companies face in terms of profitability and valuation performance in the next few quarters?Yang Delong: In the coming months, these technology and internet companies are expected to maintain a relatively good trend in profit growth. Especially as the strength of China's economic recovery increases, their profit growth rate may also see further improvement, which will also enhance the stock performance of these companies.

From an investment perspective, the valuations of many Chinese concept stocks are already quite attractive for investment, far below the historical average valuations, and some are even at the lowest historical valuation levels. Therefore, there is no need to be pessimistic about the technology and internet sector at present, and there may be room for improvement in both revenue and valuation in the next step.

Michael Burry's fund increased its holdings in Alibaba and Baidu by 30,000 and 35,000 shares respectively in the second quarter. As of the end of the second quarter, Alibaba is the fund's largest position, accounting for 21% of the market value.

What signal does the increase in holdings of Chinese concept stocks by asset management giants release? Can Chinese concept stocks maintain the upward trend in the second half of the year? Let's listen to the views of Zhang Antian, a senior macroeconomic analyst at the Research and Development Center of China Merchants Securities.

The decline in U.S. Treasury yields is favorable for Chinese concept technology stocks.

Zhang Antian: Chinese concept technology stocks have faced dual pressures on the numerator and denominator ends in the past 2-3 years. The denominator end was affected by the Federal Reserve's interest rate hikes and high U.S. Treasury yields, while the numerator end was affected by the twists and turns of China's economic fundamentals and the uncertainty of the economic outlook. Under such circumstances, overall (Chinese concept stocks) have been continuously suppressed to a relatively suitable position for allocation.

With the increasing certainty of the Federal Reserve's interest rate peak, the decline in U.S. Treasury yields driven by the Federal Reserve's interest rate cuts may lead to a turning point for a rebound, and it can be seen that foreign capital has made an early layout in the first half of the year.

Currently, U.S. Treasury yields have declined to around 3.9%, and the leading factor is not the expectation of a recession in the U.S. fundamentals, but the overseas market's current expectation that the Federal Reserve (interest rate cut) is lagging behind the curve again. According to the current forward guidance of the Federal Reserve's interest rate cut, the June SEP (quarterly economic outlook) predicts that the (interest rate) will drop to 4.1% by 2025, reaching the neutral interest rate position at a relatively slow pace. In the first half of next year, the Federal Reserve may need to quickly lower interest rates at four interest meetings. Therefore, regardless of whether the U.S. fundamentals are a "soft landing" or a recession, U.S. Treasury bonds have a strong lead space, and the certainty of the decline in U.S. Treasury yields is strong, which will be beneficial for the style of Chinese concept technology stocks.

Chinese concept technology stocks may be about to welcome a turning point for a rebound.

Zhang Antian: This round of the Federal Reserve can maintain a very restrictive interest rate level for a relatively long time, which is related to the financial conditions in the United States maintaining a neutral position rather than tightening during this round of the interest rate hike cycle and high interest rate environment. Now, the U.S. stock market and housing price index have also adjusted.From a molecular perspective, the current fundamental outlook for China and the United States still carries a strong degree of uncertainty. However, in the face of pressure on discretionary consumption in both major economies, Chinese companies possess an exceptionally strong cost competitiveness. Cost competitiveness is not easy to establish and is generally achieved through means such as economies of scale, where costs decrease after mass production, or through bargaining power within the value chain. Cross-border e-commerce platforms like Pinduoduo, with their strict control over the mid-to-back-end supply chain, have become very competitive, and small order trade is not significantly pressured by tariff risks.

In summary, as U.S. Treasury yields decline, assets that have been under considerable pressure and have undergone deeper adjustments during this round of interest rate hikes, especially Chinese concept tech stocks, are very likely to experience a turning point of recovery following a potential style shift.