Ride High on These Three Chinese Stocks As Retail Drives Them Higher

Shah Gilani|April 4, 2022

It has been two years since then-U.S. President Donald Trump vowed to hold foreign companies accountable, demanding audited financials from all companies listed on U.S. exchanges – including the Chinese ones which, until then, didn’t have to submit audited financials and never did.

The response to this policy became a “cold war” fought on the front-lines of securities trading. High-quality stocks like BABA, DIDI, and NIO, some of my favorites to come out of China, were beaten down. IPOs were postponed. But, regardless of Chinese Central Government’s retaliation, the deadline was set.

All non-compliant businesses would be removed from the New York Stock Exchange and Nasdaq by 2024 – and it seems that Chinese authorities have started to give in.

On Friday, investors learned that they are preparing to give U.S. regulators full access to auditing reports of the majority of the 200-plus companies listed in New York, as soon as this Summer.

There’s no way of knowing how serious Chinese authorities are, regarding the matter, but that didn’t stopped traders from driving shares of Chinese stocks higher in Friday’s session.

Given the fact that Chinese stocks have been significantly beaten down over the last 18 months, I think we have a pretty good short-term trading opportunity to catch a ride as retail traders look for new trades.

Alibaba Group Holding Limited (BABA): China’s Amazon

Shares of BABA have lost 63% since October 2020 but they were up more than 6.5% in early Friday trading, and 65% since March 15, 2022.

I think we could see shares of BABA easily trade north of $125 in the near term which is why I want to target a Bullish Call Spread with a May 2022 expiration.

If shares of BABA trade back down to $110 by April 8, 2022, I like buying the BABA May 20, 2022 $120/$125 Call Spread for $2.00 or less. Plan on selling the BABA May 20, 2022 $120/$125 Call Spread for a 100% (or more) profit, or if shares of BABA close below $104.00.

NIO Inc. (NIO): An EV Maker

Most Americans aren’t familiar with NIO, but the company represents a serious threat to Tesla in China and abroad.

Just like BABA, shares of NIO have been dragged down, dropping more than 58% since July 1, 2022, but they were up more than 8% in early Friday’s trading, and more than 75% since March 15, 2022.

I think we could see shares of NIO trade north of $25 in the near term, but I want to see shares pullback just a little before entering a trade.

If shares of NIO trade back down to $19.50 by April 8, 2022, I like buying the NIO May 20, 2022 $20/$22.5 Call Spread for $1.15 or less. Plan on selling NIO May 20, 2022 $20/$22.5 Call Spread for a 100% (or more) profit, or if shares of NIO close below $17.25.

DIDI Global Inc. (DIDI): Chinese Uber

Shares of DIDI jumped more than 16% in early Friday trading, but that was after a 90% drop since it June 2021 high, on fears that the Chinese Central Government would force the company to delist in the United States.

Of today’s trade ideas, this is the most speculative because Chinese authorities might want to claim DIDI’s technology, and the information it gathers, carries national security implications.

If that happens, DIDI could be excluded from the list of companies that will have their books opened up to US regulators – but we won’t know the answer to that question until later this year.

In the meanwhile, traders in the U.S. are piling into the driving shares higher.

If shares of DIDI trade back down to $2.00 by April 8, 2022, I like buying the DIDI May 20, 2022 $2/$2.50 Call Spread for $0.20 or less. Plan on selling DIDI May 20, 2022 $2/$2.50 Call Spread for a 100% (or more) profit, or if shares of DIDI close below $1.70.

Cheers,

Shah Gilani