Alibaba, PDD, and MCHI stocks get a boost from Asian bond trends

When investors think about the investment landscape, they often focus only on the S&P 500 and the United States stock market, failing to understand or be aware that global markets are more interconnected today than ever before. In a way that if an asset class moves in Europe. or Asia, it can immediately affect markets in other regions, potentially creating risks for those who are not aware.

Recently, investors can see this effect on the game South Korea declared martial law To begin in December 2024. US investors woke up to the news, with oil prices rising from $68 a barrel to a little over $70 a barrel. Of course, in this price action Energy field There will be many other impacts in other sectors and stocks, so it is very important to pay attention to other markets.

With this in mind, investors can – and should – look to Asian bond markets, particularly for the two major economies of Japan and China. As it turns out, bonds in these two economies have converged such that Chinese stocks such as Alibaba Group NYSE: BABA, PDD Holdings Inc. NASDAQ: PDDAnd comprehensive iShares MSCI China ETF Nasdaq: MCHI Today can be a great shopping experience; As other mega investors have pointed out in the past two quarters.

Changing risk perceptions in Asia: China is gaining investor confidence

First, investors need to understand bond yields and changes in these yields. Bond yields are the market’s way of telling everyone their inflation expectations for the future, rising yields mean higher inflation expectations and vice versa.

Second, they can also expose investors to implicit risks when investing in a country’s economy. There’s a reason why Brazilian ten-year bonds pay more than 13% when US ten-year bonds pay only 4.2%: there’s more perceived risk in Brazil than in the United States, and then There are inflationary assumptions.

Investors can analyze Chinese and Japanese 30-year bonds to gauge market sentiment. Currently, Japanese rates are rising while Chinese rates are falling, leading to a rare reversal where Japanese rates outperform China’s – possibly indicating that the market now sees Chinese investments as less risky. They see

This reversal presents a unique opportunity to gain exposure to Asia’s powerhouse as broader markets and sentiment begin to shift positively towards Chinese stocks. Additionally, the relationship between stock valuations and bond yields in China offers another compelling angle for investors to consider.

The CSI 300 index (China’s equivalent of the S&P 500) now offers twice the yield of Chinese 10-year bonds. Investors can gain exposure through the iShares China ETF, which currently provides A 2.5% dividend yieldExceeding the 2.2% yield on Chinese bonds. Although the difference seems small, it indicates a significant change.

All else being equal, stocks should never outperform a country’s bonds. There have been only two occasions in the United States when the S&P 500 has outperformed US ten-year bonds: in 2008 and 2020. Both extremes did not last long.

An increase in Chinese stock buying may be on the horizon

The fact that the Chinese stock market, despite having higher yields than ten-year bonds, has yet to rally may indicate that sentiment toward the country’s stocks is driven primarily by fear. As Warren Buffett likes to say, “Be greedy when others are fearful.”

Some investors, eg David Tapper, Michael Burry, Howard MarksAnd also George SorosTook that advice to heart. These investment legends decided to start pouring capital into China, particularly through Alibaba and PDD Holdings.

Wall Street analysts, as risk-averse as they are, were bold enough to assign ratings to these stocks that reflect a more realistic view. With Alibaba, for example, the consensus price target is set at $114 today, calling for an upside of 34.2% from where it trades today.

However, some are willing to break away from the pack, such as Barclays. After reiterating their overweight ratings for Alibaba stock, these analysts hit a snag. $130 a share price target On the company, a jump as high as 53% from where the stock trades today.

The same trend exists for PDD stock today.

Analysts set a consensus price target of $173.4 today, daring the stock to rise 78.1% from its current price.

However, Macquarie’s analysts decided to raise their rating to outperform from neutral by October 2024, this time calling for a 130% increase in their rating. $224 price target.

Before considering PDD, you may want to hear this.

MarketBeat keeps track of Wall Street’s top-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified Five stocks That top analysts are quietly telling their clients to buy before the broader market arrives… and PDD wasn’t on the list.

While PDD currently has a “medium buy” rating among analysts, top analysts believe these five stocks are better buys.

Check out five stocks here

Like this article? Share it with a friend.

Link copied to clipboard.