Markets rebounded so much so far in January that it is almost erasing the fears built up in December. The danger with the renewed optimism is that the U.S. and China did not finalize any deal just yet. So if "hopes" and "expectations" are driving stocks over anything tangible, are China-based stocks investable yet?
Alibaba (NYSE:BABA) implemented spending freezes that includes a stop to new hiring. Despite showing strong revenue growth previously, the slowing business in the last quarter could hurt results scheduled for a Jan. 30 posting. Already, BABA stock is $157, well above the $130 low set earlier this month.
BABA stock trades at growth rate valuation at 46 times earnings. JD.com (NASDAQ:JD) stock is even more expensive. JD is valued at a 42 times forward earnings, compared to Alibaba’s forward P/E of 23 times.
Both stocks are valued as if the countries will iron out a fair deal. But the reality is that the tariffs imposed on China may not go away. And China will have to make concessions to get those rates lowered. Already, China said it would not allow companies to have IP access is a condition of joint venture deals. The U.S. balked at that, saying this restriction is not enforceable.
Takeaway
Trade China stocks for now but be ready to sell and lock in profits if talks break down and a slowdown is all but a certainty.
