Forget Google. Three Chinese Tech Stocks to Watch

NEW YORK (TheStreet) -- Short of living in a cave for the last decade or so, there can be few Americans not aware of Google (GOOG) and Yahoo! (YHOO). But what about fast-growing rivals like Baidu (BIDU) and SINA (SINA)?

Both companies are up-and-coming web search firms making waves in China. While China's phenomenal economic growth has been well documented, many U.S. investors are still green when it comes to evaluating the Asian country's booming technology sector. While the U.S. has been saddled with news of banking bailouts and multi-billion dollar healthcare reforms, the Chinese government has been quietly implementing its own stimulus package, worth a massive $585 billion.

Around $54 billion of this sum has been earmarked for technology advancements, underlining the growing momentum behind the country's IT sector.

"I think that there will certainly be investment opportunities in China," Jennifer Belissent, senior analyst at research firm Forrester, told TheStreet. "I think we're going to see Chinese companies emerge in all technology domains."

We have, of course, already seen at least one Chinese firm stamp its mark on the U.S. technology landscape. Back in 2005, Lenovo sent shockwaves through the sector when it bought IBM's ( IBM ) PC business for $1.75 billion.

Other Chinese tech firms are now becoming more visible to investors on this side of the Pacific, including Shanda Interactive ( SNDA ), a gaming giant and competitor to Electronic Arts ( ERTS ).

One note of caution: the country's emerging economic status could make Chinese companies subject to greater volatility than their U.S. counterparts. Just last month, for example, China's government clamped down on bank lending in an attempt to harness China's rapid economic growth, which impacted stocks.

A smart option opening up to investors looking at China is an ETF packed with Chinese tech stocks, like Claymore Securities' recently-launched Chinese Technology Fund ( CQQQ ).

"Now that investors are looking for new opportunities, we feel that some of these are best served by launching ETFs like CQQQ," William Belden, managing director of ETFs at Claymore Securities, told TheStreet. "If you would have tried to buy this basket on your own five years ago, you would not have been able to have access to some of these companies."

With his ETF encompassing 33 Chinese technology companies such as Baidu, Sina, Sohu and Alibaba.com, Belden says an ETF allows investors to better manage the risks posed by owning individual stocks. "I think it's probably fair to say that the 33 names is going to increase over time," he added. "We certainly believe that the prospects are bright for their marketplace."

It is inevitable that China's technology marketplace will evolve over the coming years, and Forrester analyst Belissent says that U.S. investors should keep their eyes open for new Chinese technology companies.

"I think they will emerge very strong in any technology areas they go after," she said, adding that this could be tied to specific industries. With China's economic stimulus package focusing on areas such as healthcare, renewable energy, and high-tech manufacturing, Shanghai and Beijing could well become the Silicon Valleys of the twenty-first century.

Read on for three promising Chinese stocks.

Baidu



Based in Beijing, Baidu provides Internet search services to China's vast population of 1.3 billion, a potential customer base Silicon Valley could only dream of. The company, which celebrates its tenth anniversary this year, holds about 64% of the country's search market share, leaving Google's China site Google.cn with approximately 31%.

With a market cap of $14.87 billion, Baidu is less than one-tenth of the size of its U.S. rival, but has been enjoying much faster share growth, thanks to its first-mover status and knowledge of its audience. Over the last 12 months Baidu's share price has risen more than 230%, compared to Google's 57.46%.

Currently trading around $426, there is a concern that Baidu may be fully valued, although the company's stock enjoyed an uptick following Google's threats to leave the Chinese market.

Baidu, though, is not just a Chinese-centered company. It has already expanded into Japan, a potential launch pad into other Asian markets. With China already the world's second-largest search market after the U.S., the future looks bright for Baidu.

Sina



Cited last year as an attractive stock by Stephanie Link, director of research at TheStreet's Action Alerts Plus service, SINA is an Internet firm based in Shanghai.

Like its Chinese rival Sohu ( SOHU), Sina competes with Yahoo! and was recently upgraded to outperform status by Pacific Crest Securities on the strength of improved ad spending.

Whereas Yahoo's shares have risen just under 30% in the last 12 months, Sina's have climbed more than 70%. The Chinese firm also shares a similar forward-looking P/E ratio to its rival of 23.47, compared to Yahoo's 25.02.

With the Wall Street Transcript reporting that some $50 billion will be spent on telecom capital expenditure in China this year, it is clear that Internet service providers such as Sina are in a good place.

While numbers from the government-sponsored China Internet Network Information Center reveal that the country has less than 30% Internet penetration, the figure is expected to double over the next three years, according to HSBC.

Shanda Interactive



A competitor of U.S. gaming giant Electronic Arts, Shanda Interactive has already earned admiring glances for its ability to perform in a tough spending climate. (and there is the compelling nature of its online role-playing games, which include Dungeons & Dragons Online.)

The company's shares have risen more than 50% in the last 12 months, compared to EA's, which crept up a little more than 7% over 2009. With the global economy slowly emerging from recession, Shanda is now gearing up for growth.

China's Internet explosion is proving fertile ground for online gaming and other Web-based services, with companies like NetEase ( NTES) and ChangYou.com ( CYOU) all coming to the fore.

It has been suggested, however, that the IPO of Shanda Interactive spinoff Shanda Games ( GAME) may have marked a top in the Chinese gaming stocks.

While Shanda Interactive's recent stock performance has reflected this trend, the company is still well-positioned to reap the benefits of China's latest revolution.

--Reported by James Rogers in New York

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