While the United States is home to some of the world’s largest companies, it’s far from the only place you’ll find mega caps. In recent years, China has seen the rise of several of its own global powerhouse companies. This includes Baidu, Alibaba and Tencent Holdings. Collectively called BAT stocks, an acronym for their names, this group of three Chinese companies has piqued the attention of investors.
For many investors, BAT stocks are their best chance at multinational exposure. Even more so if they hand-pick their own portfolio. These companies are large enough to garner regular attention from financial news media. Moreover, they’re a focal part of the global economic landscape.
Here’s a closer look at BAT stocks: the companies that comprise this group and why they’re so popular with investors around the world.
Meet the Companies in BAT
The term “BAT stocks” is relatively new. Its use amongst investors began in 2015. Furthermore, it marks the rise of Chinese tech stocks and their growing prevalence in investors’ portfolios. And while it’s an acronym that’s likely to change as more Chinese startups creep into consideration, here’s a look at the founding members of the BAT stock group:
- Baidu (NASDAQ: BIDU). This is the largest search engine provider in China. Founded in 2010, it handles over 6 billion search queries per day in China alone. It currently owns 80% of search engine market share in China, amounting to 640 million daily active users. It’s often referred to as China’s Google.
- Alibaba (NYSE: BABA). Best thought of as a Chinese version of Amazon, Alibaba is an online shopping network that has two distinct facets. The first is a customer-facing portal (Taobao) that operates in much the same way Amazon does. The second is a B2B business portal (Tmall) that makes it easy for companies around the world to access Chinese suppliers and manufacturers.
- Tencent Holdings (OTCMKTS: TCEHY). Tencent Holdings is best compared to Berkshire Hathaway in terms of its structure. While it owns and operates major services like WeChat and TikTok, it’s best known for its investment activities. It has an active stake in more than 600 companies, including tech companies, video game publishers, digital payments, smartphones and more.
Some people also include the Chinese company Xiaomi (OTCMKTS: XIACF) in this group, creating the acronym BATX.
These stocks are prolific in their exposure and easily the most valuable public companies in China. They’re also poised to get bigger as Chinese technology continues to expand on a global platform, and more global investors begin to see the potential for investment ROI.
BAT vs. FAANG
BAT stocks are largely seen as the Chinese equivalent to FAANG stocks in the United States. While the names of the companies have changed since investors coined FAANG, this acronym is still used broadly in financial media to refer to the following mega caps:
- Meta Platforms (Facebook) (NASDAQ: FB)
- Apple (NASDAQ: APPL)
- Amazon (NASDAQ: AMZN)
- Netflix (NASDAQ: NFLX)
- Alphabet (Google) (NASDAQ: GOOG)
There are many similarities between these two groups. Aside from the fact that they’re all mega cap companies, they’re all also technology focused. Moreover, they have significant impact in a social sense, you likely know someone with a Netflix subscription and a TikTok account (Tencent Holdings). Above all, these are the stocks investors use as a measure of market and sector performance. In many ways, BAT stocks are China’s version of FAANG stocks.
Criticisms of BAT Stocks
While they’re immensely popular with investors around the world, BAT stocks do face substantial criticism. Specifically, there are many institutional funds and investors in the United States that refuse to invest in them.
The primary criticism of BAT stocks is that these companies aren’t held to the same financial reporting transparency as U.S. companies. Investors looking at public financial records can’t always be certain that the figures they’re given accurately represent the company. In fact, the United States Securities and Exchange Commission (SEC) has issued statements warning investors about the efficacy of financial reporting from Chinese companies.
The other chief criticism of BAT stocks is that they’re subject to interference from the Government of the People’s Republic of China. There have been many instances in the past of government influence on private sector Chinese companies, such as banning products or requiring compliance with new, specific laws. Many investors feel like the potential for government overstepping could affect the integrity of BAT stocks.
Finally, like FAANG stocks, many investors deem BAT stocks overvalued. Despite obfuscation and confusion in their financial reporting, these stocks tend to trade at extreme multiples beyond earnings and profits.
Why Invest in BAT stocks?
Despite criticisms, many investors still flock to BAT stocks because of their tremendous potential. Not only are they ubiquitous companies in China, they’re powerful and lucrative enough to stand on the world’s stage with the likes of FAANG stocks. They represent many of the same opportunities of FAANG stocks, just in another country.
The other reason to invest in BAT stocks is to capitalize where others avoid. While there’s risk associated with investing in Chinese companies, there’s also tremendous upside. Those willing to take a risk on BAT stocks could find themselves reaping profits that others willingly avoided. It’s important to remember that even with obfuscation, there’s clear and present demand for these companies and their services within the most populated country in the world. China often operates as a walled garden, which means it needs its own FAANG stocks. BAT stocks are the answer.
Should You Invest in BAT Stocks?
If you’re a momentum investor that’s comfortable taking on a healthy amount of risk, BAT stocks offer interesting prospects. These companies are gigantic and powerful, and generate significant returns with products and services that are widely used. There’s speculation about their financial accounting and transparency, but it’s a known risk. For those who believe in companies that grow too big to fail and too ubiquitous to fall out of favor, BAT stocks are worth the investment.
