10 China Stocks That Are Still Undervalued in the Current Rally

China's latest economic stimulus has triggered a sharp surge in stock prices, with Monday marking the biggest one-day jump since 2008 as the Shanghai Composite Index soared by 8%. This policy shift has transformed market sentiment, offering a positive outlook for Chinese investors. While the market has seen several dramatic gap-ups in recent days, it remains 32% below its 2021 all-time high (at the time of writing, stock prices are fluctuating rapidly), indicating that many stocks are still undervalued.

We have compiled a list of 10 Chinese stocks that remain undervalued amidst the ongoing rally.

#1 Alibaba (BABA, 9988)

Alibaba, the e-commerce giant in China, needs little introduction. It is often considered the flagship stock for foreign investors looking to gain exposure to China. While many may have initially invested in Alibaba, whether they’ve held onto it is another question. Recently, the stock has shown signs of life, reigniting hope among investors.

However, expectations should be tempered. For those who bought near $300, a return to those levels seems unlikely in the near term. Whether Alibaba can fully recover to its previous highs remains uncertain, as it would require significant perception shifts in its outlook.

That said, there are some positive signs, many of which have been previously discussed on Growth Dragons:

• Aggressive share buybacks

• The government has completed its antitrust review of Alibaba and is satisfied with the outcome

• New management with a fresh strategic direction to drive growth

• Rapid international e-commerce expansion

More importantly, the stock is currently breaking out of its recent lows. It has bounced back more than 100% from its bottom and is hitting a two-year high, with moving averages trending upward—suggesting the early stages of a bull run.

We estimate a fair price around $143, while the current share price hovers around $110. If China’s consumption picks up following the recent stimulus, it could provide an additional boost for Alibaba's stock.

#2 Anta (2020)

Anta is one of China's leading sportswear companies, specializing in the design, manufacturing, and retail of athletic apparel, footwear, and accessories. Operating under multiple brands, including Anta, Fila, and other international names, the company offers both performance-oriented and lifestyle products. We estimate a fair value of HKD 130, with the stock currently trading around HKD 94, presenting an upside potential of approximately 38%. Since its founding in 1991, Anta has gained international recognition, with athletes like Klay Thompson and Kyrie Irving serving as brand ambassadors.

With over 7,000 Anta stores across mainland China and more than 2,800 overseas, the company’s portfolio also includes brands like Fila, Descente, and Kolon Sport. Anta has shown strong revenue growth year-on-year for the first half of 2024, signaling that Chinese consumers continue to purchase its products despite the broader weakness in consumption.

We covered Anta earlier this year:

#3 China Merchants Bank (3968 / 600036)

China Merchants Bank (CMB) is a leading Chinese commercial bank, offering a wide range of financial services, including retail banking, corporate banking, wealth management, and investment banking. Known for its innovation in online and mobile banking, CMB is well-regarded in the industry. Our fair value estimate is HKD 42, while the stock is currently trading around HKD 37.

CMB stands out among Chinese banks with a significantly higher return on equity (ROE) compared to its peers. Additionally, the bank has a lower proportion of its portfolio tied to real estate and is more heavily invested in tech businesses. This positions CMB to benefit from a rebound in tech sector performance, potentially outperforming other Chinese banks. Its 5.7% dividend yield is also appealing for long-term investors.

While some investors may be concerned about Chinese banks locking up assets in state-owned enterprises and facing low net interest margins, the central bank has introduced a swap facility that allows banks to exchange their investments for liquid treasury assets, providing greater flexibility. Furthermore, recent mortgage rate reductions are aimed at stimulating consumer spending by encouraging borrowing and increasing purchasing power. These measures could boost CMB as consumer spending picks up at a faster pace.