To The Moon

2022 Investment Opportunity is in China: As U.S. stocks fall, Chinese stocks will lead the way.

U.S. core stocks kept tumbling after the New Year in 2022. Semiconductors, which performed well last year, have been the hardest hit.

Nvidia fell nearly 30% from the high, and AMD 25%. $Taiwan Semiconductor Manufacturing(TSM)$ and $ASML Holding NV(ASML)$ also fell even the 2022 earnings growth rate exceeded expectations.

What happened to U.S. stocks? 

The beginning of 2022 was so bearish. The investors who get used to the long bull or slow bull market really have no idea about the future investment.

Amongthe declining U.S.stocks, Chinese stocks have great investment prospects.

Last year, due to China's anti-monopoly and double-reduction policy, Chinese stocks kept tumbling, and many stocks got cut in half. Even $Alibaba(BABA)$, which Charlie Munger bet on, hit new lows.

The Hang Seng Index of the Hong Kong stock market fell 14% in 2021, making it the worst performing index.

Many US-listed Chinese companies also apply for secondary listings in Hong Kong, so the share prices in HK and US stock market are related. Chinese stocks, abandoned by investors, have recently started to see a turnaround.

Since the beginning of 2022, the Hang Seng Index has gained 6%. Chinese core stocks also go up: Tencent increases 3%, Alibaba 8%, JD 10%, Kuaishou 25%......

Influenced by the strong rebound of the Internet giants in Hong Kong market, Chinese stocks have been significantly stronger than the US stockmarket recently.

What is the logic behind the very different trends in HK and US market?

The most important reason is the low valuations of Chinese stocks after the big drop. But with a large share price increase in 2021, most giants in the U.S. stock market have very high valuations. Considering the valuation, it is not difficult to understand the stock price plunge when the Fed announced rate hikes.

Taking new energy vehicles as an example, $Tesla Motors(TSLA)$ 's P/S ratio (TTM) is 22. The average forecast for 2022 revenue growth by analysts is 46%.

While the P/S ratio of $NIO Inc.(NIO)$ , a star stock of new energy vehicles in China, is only 9.The Bloomberg analysts expect that NIO 2022 revenue growth rate will be 76%.

In terms of movie and entertainment sector, $Netflix(NFLX)$ 's current P/S ratio is 7.9, and the 2022 average revenue growth forecast is 15%; while $Bilibili Inc.(BILI)$ 's current P/S ratio is 5.3, and the revenue growth forecast is 43%.

There are many comparisons like these companies. 

It’s an indisputable fact that the valuation of leading U.S. stocks is expensive.

For example, $Apple(AAPL)$ currently trades at a P/E (TTM) ratio of 30. Although not too high, Apple's revenue growth rate has fluctuations, and the 33% growth rate for FY2021 is difficult to sustain. The Bloomberg analysts’ estimate for Apple's revenue growth in 2022 is 4.3%.

In terms of historical P/E ratio data, 30 is hardly cheap for Apple, if its 2022 revenue growth rate declines to the average level of previous years.

$Microsoft(MSFT)$ , another giant in the U.S. stock market, has a stable revenue growth rate of about 15% from FY2015 to FY2021. But with a current P/E (TTM) ratio of 34, the stock doesn’t have much room to grow.

Semiconductor's leading stocks TSMC and ASML both have optimistic expectations for 2022 with strong results. However, in terms of P/B ratio, semiconductor concept stocks are at all-time highs. Even in terms of P/E ratio, ASML is expected to be valued at 34 in 2022.

Thus, it may be difficult to associate the U.S. stock prices with undervaluation.

It also explains why U.S. tech growth stocks began to wilt in anticipation of the Fed rate hikes.

However, Chinese stocks avoided the high valuation risk due to the early fall.

China and the U.S. have adopted completely different monetary policies, with China cutting interest rates to stimulate the economy. It is highly possible for Chinese stocks to outperform the Nasdaq Index in 2022!

What's your opinion about Chinese ADRs?

Do you hold any Chinese ADRs or U.S. stocks?