China stocks to sell are under scrutiny with the shifting global market dynamics. Interest rates are expected to remain higher for longer, diverting capital from riskier assets such as Chinese stocks. At the same time, China’s recent military drills near Taiwan have added more fuel to the fire. These military exercises have injected a fresh dose of volatility into the Chinese stock markets in addition to the tensions between the U.S. and China.
Hence, investors need to be more circumspect before picking out Chinese stocks. The regulatory environment’s unpredictability and the complicated geopolitical scene are cause for major concern. Chinese companies in particular are at risk, making it imperative for investors to be selective about their exposure to the country.
Bilibili (BILI)
Bilibili (NASDAQ:BILI) hailed as China’s YouTube, commands a massive audience of over 300 million monthly users and north of 100 million daily active users. Despite its imposing presence, it is in a tough spot, grappling with modest growth while investor expectations remain elevated. The stock is up more than 20% year-to-date, beating the S&P 500’s 12% gain.
However, from a financial perspective, the company has little to show at this point. Growth rates in particular have been unimpressive, especially when stacked against its historical metrics. Revenue growth on a year-over-year (YOY) basis stands at just 5.51%, compared to its five-year average of 48%. Similarly, its profitability position is a sea of red, with negative YOY net income, EBITDA and return on equity metrics.
Moreover, it recently released its first-quarter (Q1) results, in which its key revenue driver in its mobile gaming segment witnessed a concerning 13.1% YOY drop. These results came in significantly behind already modest analyst projections of a negative 2.8%. The slowdown in its gaming segment is particularly worrying at a time when the firm is looking to streamline operations and cut back on less successful projects. Hence, investors need to tread with caution when considering BILI stock.
Nio (NIO)
In the cutthroat realm of Chinese EV stocks, Nio (NYSE:NIO) finds itself in a precarious position. The EV upstart has been hemorrhaging billions each quarter without offering its investors a clear path toward profitability. Moreover, the broader market slowdown has only exacerbated the company’s challenges. Consequently, NIO stock has shed more than 42% year-to-date (YTD) and more than 34% last year.
To be fair though, Nio and many of its peers enjoyed a stellar run during the EV boom during the pandemic years. Its five-year average top-line growth stood at a handsome 899%, compared to its paltry YOY growth of just 13%. Moreover, its bottom-line metrics are firmly in the red, marked by a negative 38% net income margin. Things are only expected to get tougher as we advance, with the geopolitical headwinds and the price war among Chinese EV players. With these compounded pressures, Nio is an unattractive stock to bet on at this point.
iShares MSCI China ETF (MCHI)
iShares MSCI China ETF (NASDAQ:MCHI) is another China stock you’d want to offload at this time. The current bullishness in the Chinese equity market seems like a mirage of stability, which isn’t grounded in macroeconomic improvements. Consequently, positive investor sentiment has taken MCHI stock to new highs this year. It’s trading near its 52-week high price of $44.97, gaining almost 14% YTD. Moreover, it hasn’t been the most rewarding of investments over the years, so the current bullishness has been coming for a long time for its investors.
However, the real question is whether the current rally has staying power, which makes MCHI stock speculative at this point. Additionally, the bear case is strengthened further, considering its annualized volatility of 25%, which is over 96% higher than the median for all ETFs. Also, its expense ratio of roughly 0.6% exceeds the median for all ETFs by 23%.
Furthermore, the MCHI ETF has more than 15% of its portfolio invested in Chinese financial stocks, which are heavily linked to domestic economic conditions. Hence, this scenario paints a grim picture for those looking to cash in on the growth trajectory in China’s stock market.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines