Chinese stocks are trading significantly lower Monday amid a COVID-19 outbreak in China's manufacturing hub, developments between China and Russia in relation to war and regulatory scrutiny of Tencent Holdings Ltd (OTC:TCEHY).
Despite the muddy waters clouding the Chinese markets, O'Shares ETFs chairman Kevin O'Leary is taking advantage of the flash sale and buying shares of Tencent, Alibaba Group Holding Ltd (NYSE:BABA) and Meituan (OTC:MPNGF).
"Anytime you get an analyst calling multibillion dollar market cap stocks growing in an economy that's larger than ours ... 'uninvestable,' that's a buy signal," O'Leary said Monday on CNBC.
What Happened: JPMorgan analyst Alex Yao downgraded Alibaba from an Overweight rating to an Underweight rating and lowered the price target from $180 to $65.
"We believe Alibaba, as one of the most widely owned stocks within the China internet sector, will continue to face stock selling pressure in the near term," Yao wrote in a note to investors.
See Also: Alibaba Looks To Trim Work Force By Up To 20%
The JPMorgan analyst downgraded a handful of other Chinese stocks as well, calling them "uninvestable" right now.
O'Leary's Take: Chinese stocks have been relentlessly slaughtered all year, O'Leary said, adding that the moves in some of the Chinese names Monday are overdone, considering their overall declines over the last year or so.
O'Leary, who will be the keynote speaker at the inaugural Benzinga Psychedelics Capital Conference on April 19, noted that he isn't sure he is buying the bottom, but he's making a fundamental decision about the headwinds China is up against. The main headwind is the ADR structure, he said. Those companies have about 24 months to comply with regulatory changes, or they risk delisting, he explained.
"Now even if that were to happen — which I think it's not going to happen, they're going to fix this before that does — it doesn't stop the growth rate of these companies," O'Leary said.
He told CNBC that he feels comfortable buying Alibaba, Tencent and Meituan because all three companies are huge and already have distribution systems in place.
"To get Alibaba down 7% in one hour, that's hard to do, that's a very large market cap stock. So thank you analyst guy, I appreciate that, but at the end of the day, they're still gonna grow and that's why I bought them."
BABA, TCEHY, MPNGF Price Action: At publication time, Alibaba was down 10.5% at $77.62, Tencent was down 10.1% at $40.26 and Meituan was down 15.2% at $13.50.
Photo: courtesy of Alibaba.
