So the economic data in China has finally turned. While challenges in China and elsewhere remain, the recent trade data and housing numbers showing a surplus for China's exports and increasing apartment sales for the second consecutive month of the year, are looking better.
Also, for the first time in several months, some shipping companies and analysts covering this industry are growing increasingly bullish on shipping rates going into the back half of the year as well.
If the recovery in China does accelerate into the back half of the year and the Shanghai and Hong-Kong Indexes rally, one sector where the fundamentals have remained strong is with Chinese Internet stocks. The biggest name in this space is Baidu (BIDU).
Well Baidu shares have been held back by weakness in the broader Chinese indexes and their tracking exchange traded funds like FXI (FXI), Baidu has several key catalysts coming up in the near-term.
Apple did not have as much success with their iPhone 4 launch in China as was planned. However, having learned from their mistakes and with Tim Cook seemingly increasingly focused on the China market, the new iPad 3 and iPhone 5 launch should be more successful.
In addition to the fact that most Chinese cell phone users pay month-to-month and don't want to lock in to long-term user contracts required by the previous iPhone launch in China, the iPad is a cheap and easy to use device for Chinese internet users who like playing the very popular Chinese role playing games and engaging the popular social networking sites like Renren (RENN).
Since Baidu is estimated to have built their market share to around 75-85% of the search market in China since Google's disputes with the Chinese government more than a year ago, Baidu is well-positioned to form partnerships with companies looking to appeal to Chinese internet users. Baidu's more minimal market share in the mobile space also sets up a nice growth opportunity if they can establish partnerships or agreements with companies like Facebook and Apple.
While Apple is not expected to launch the iPhone 5 until fall, the company is currently in the process of introducing the iPad 3 to the Chinese market. Analysts have also grown increasingly bullish on the company's prospects for beating coming earnings reports as well.
Technically, Baidu has also began to significantly outperform the Shanghai and Hong Kong indexes as well. Let's look at the chart.
Baidu has also performed remarkably well during the recent sell-off, and the stock is currently just a couple dollars of its 3 month high.
As we can see, since Apple announced their decision to open up the iOS operating system to Baidu in late March that I've discussed in previous articles.
Baidu shares have also held up much better than many of the broader Western indexes like the S&P 500 and its tracking exchange traded fund SPY (SPY), despite underperforming this index at the beginning of the year.
To conclude, while stocks like Apple, IBM (IBM), JP Morgan (JPM), and Citigroup (C), have been the market's leaders so far, China looks ready to run.
Given that Baidu is essentially a monopoly in the Chinese search market today, companies like Apple and Facebook (FB) have little choice in who they chose to open their devices and websites too if they want to enjoy the same success in the Chinese market they these company's have seen in the U.S.
While Baidu's market share in the mobile space is more limited, the company's strong foothold in the internet search space should give them a leg up in forming agreements and establishing partnerships with mobile giants like Apple. A partnership or agreement with Facebook would also likely help growth their market share in mobile since many young users communcate through social networking sites.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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