Stocks to buy

3 Stocks to Capitalize On as China’s Crackdown Comes to a Close

China’s tech industry regulatory crackdown lasted 32 months and resulted in a $1.1 trillion loss in market value, wreaking havoc on major tech companies. The crackdown was initiated out of concern that the country’s internet giants were becoming too large and powerful. Also, the crackdown disrupted the once-dynamic tech sector and accelerated the decoupling between the US and China. However, recent developments, including fines imposed on Tencent and Ant Group, signal that the crackdown may finally end. We are again seeing big potential in certain post-crackdown stocks.

Opportunities emerge for savvy investors to capitalize on the changing landscape as the regulatory storm subsides. The article contains three post-crackdown stocks that stand to benefit from the easing of regulations. Each company has unique strengths and strategies to leverage as they navigate the new era.

Tencent (TCEHY)

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Tencent (OTCMKTS:TCEHY) regulatory challenges were primarily gaming and fintech. However, as the Chinese government prepares to normalize regulations, Tencent will again be able to drive growth.

With the approval of game licenses happening regularly, Tencent’s domestic gaming business is expected to see accelerated growth. Already having a portfolio of successful games and studios behind it, Tencent may outperform by launching high-quality games and leveraging its large user base. The company may also be planning to expand its e-commerce initiatives. The company has already made progress in integrating e-commerce with its platforms, such as video accounts and mini-programs. 

Additionally, Tencent’s investments in generative AI may unlock new opportunities. The development of its foundation model, Hongyuan, shows promising progress. By utilizing high-quality data from across the internet, including China-specific data and Tencent’s content ecosystem, Tencent may enhance its user services, improve monetization and lower costs.

While Tencent continues to exercise cost discipline, it should strategically allocate resources toward growth areas. As a result, this includes investing in new games, expanding AI capabilities and further developing its e-commerce initiatives. Finally, by leveraging its strong user base, technology infrastructure and market expertise, Tencent can position itself as a leading player in post-crackdown stocks.

Alibaba (BABA)

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The exit or weakening of competitors allows Alibaba (NYSE:BABA) to capture a larger market share, enhancing its influence and control over the industry.

Alibaba may gain clarity on compliance expectations as the regulatory environment stabilizes. By proactively adapting its business practices, Alibaba can build trust with regulators, mitigating future regulatory risks.

The company may also leverage its strong financial position and resources to diversify its business lines and expand into new sectors. The regulatory crackdown has prompted Alibaba to reevaluate its operations and identify areas with less regulatory scrutiny. Also, Alibaba may tap into new revenue streams and reduce its reliance on traditional e-commerce. 

Moreover, as the domestic regulatory environment stabilizes, Alibaba may focus on international expansion. The company’s expertise in e-commerce, cloud computing and digital payments can be leveraged to enter new markets and establish strategic partnerships. Thus, expanding globally will diversify Alibaba’s revenue sources and reduce its dependence on the Chinese market.

Finally, the crackdown has emphasized the need for improved corporate governance practices in the tech industry. Also, Alibaba may seize the opportunity to enhance its governance structure, promote transparency, and establish robust internal controls. By demonstrating leadership in corporate responsibility, Alibaba may rebuild stakeholder trust and foster long-term, sustainable growth, becoming one of the prime post-crackdown stocks to buy.

Baidu (BIDU)

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Baidu (NASDAQ:BIDU) has the potential to capitalize on the opportunities that arise as China’s regulatory crackdown begins to ease. The company’s strong position in areas such as online marketing, AI cloud and autonomous driving positions it well to navigate the evolving landscape.

Firstly, in online marketing, Baidu’s revenue growth in Q1 2023 signals a positive recovery from the impact of the regulatory crackdown. With offline sectors, such as healthcare and travel, returning to pre-pandemic levels, Baidu may leverage its extensive user base and strong engagement levels, attracting advertisers and capturing a larger market share.

Baidu’s AI Cloud business, with its profitability on a non-GAAP operating level, is also well-positioned to benefit from the increasing demand for cloud services in China. The adoption of the ERNIE Bot by enterprise customers across various sectors demonstrates the potential of Baidu’s generative AI capabilities. As ERNIE Bot gains traction and drives customer productivity and efficiency, Baidu may bring in new clients and further enhance its market position. Also, the company’s commitment to cost optimization and technical advancements in AI Cloud strengthens its competitiveness.

Additionally, Baidu’s Apollo Go autonomous driving business has the potential to flourish as regulations become clearer and public acceptance of self-driving technology increases. Baidu’s experience operating the largest search engine in China for over two decades. Its extensive data and AI expertise provide a strong foundation for developing autonomous driving solutions. Finally, by focusing on reducing operational costs and improving efficiency, Baidu can work towards achieving breakeven. Consequently, it can build a sustainable business model in the robotaxi market. BIDU is on the fast track to becoming one of the top post-crackdown stocks for investors to consider!

As of this writing, Yiannis Zourmpanos was long BABA. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Yiannis Zourmpanos is the founder of Yiazou Capital Research, a stock-market research platform designed to elevate the due diligence process through in-depth business analysis.