Data as of Dec. 15, 2021
2021 marked the beginning of a major clean-up and reform cycle for many Chinese sectors. New regulations, investigations and fines that target a swath of sectors have dominated the headlines, with mega-sized companies like Alibaba and Tencent made the top targets. Worse still, even as the markets were digesting and interpreting this new playbook of operating businesses in China, investors had to contend with the liquidity crisis in real estate developers, including most notably, the China Evergrande Group.
Though the broad market performance was disappointing, especially in the offshore side of the Chinese capital markets, in our coverage of 175 stocks, 97 had positive returns for 2021. Three of the stocks scoped a one-year return of more than 100%, but also entered the expensive territory with price-to-fair value ratios exceeding 1.0. Genscript Biotech (01548) returned a whopping 260.5%. The no-moat name is now trading 99% above its fair value of HK$ 20.5. Two other winners in 2021, China Longyuan Power Group (00916) and Intron Technology (01760) are also around 50% overvalued.
This is not true for all gainers, though. For example, even after a 30%-plus gain, Postal Savings Bank Of China Co Ltd (01658) and SGX-listed Hongkong Land Holdings Ltd (H78) remain undervalued, both with a 16% discount to their respective fair value.
At the other end of the spectrum, the biggest losses came from two private tutoring providers on the mainland, TAL Education (TAL) and New Oriental Education & Technology (EDU, 09901). During the summer, the authorities said all institutions with a school curriculum must register as non-profit organizations. The sector’s meltdown led to TAL losing 92.9% and New Oriental falling by 87.8%.
The Chips are Up
In the Taiwan market, companies in the electronics industry continue to ride on the shortage story. Fabless chip designer MediaTek (2454) tops our coverage of 14 stocks with a 50.86% return, followed the second largest foundry United Microelectronics Corp (2303) and Hon Hai Precision Industry (2317), which is most known for its smartphone assembly business. The island’s heaviest weight, wide-moat Taiwan Semiconductor Manufacturing Co. (2330) ranked the fourth with a 17.2% gain.
For those who see strong long-term potential in China markets and believe that the sell-off represented a buying opportunity, our analysts list 20 moaty names that are currently cheaper than their fair values. Here they are:
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