CMSI names Geely Auto top pick as Chinese auto stocks enter 2-year window

China Merchants Securities International named Geely Auto its top pick in the sector, saying Chinese auto stocks are entering their best positioning window in two years.

"Downbeat expectations from domestic demand overdraft this year have already been priced in, and the sector is now entering the best positioning window over a two-year horizon," CMSI said in a report.

The broker expects the industry to shift from "weak domestic demand and strong overseas expansion" to "stable domestic demand and strong overseas expansion" in 2027. Geely Auto's exports breached 100,000 vehicles in June, while its capacity cooperation in Europe with Volvo and Ford factories marks a key step toward localized European production. BYD Company's ultra-fast charging strategy reinforces its domestic market foundation, with overseas factory capacity starting to increase from the second quarter of 2026 and an export ratio above 40 percent. XPeng-W remains a medium- to long-term focus, with three new models in the second half of 2026 expected to support a sales recovery, while its Robotaxi and robotics businesses may provide AI-driven valuation upside.

The bullish call comes as Chinese EV makers expand aggressively in Europe. BYD accounted for 2.2 percent of new car registrations across the EU, UK and EFTA markets between January and April, while Geely's group brands held a 2.5 percent share. Chinese brands remain 21 percent cheaper than comparable European-made electric vehicles, according to Transport & Environment data.

In the auto parts sector, CMSI continued to favor Minth Group, Fuyao Glass and Weichai Power, citing high overseas revenue exposure, improving average selling prices or clear expansion into new AI data center businesses.

The report signals that institutional investors should view the current weakness in Chinese auto stocks as a buying opportunity. The next catalysts for the sector will be second-half 2026 delivery numbers from Geely and BYD, along with the ramp-up of Geely's European production capacity.

This article is for informational purposes only and does not constitute investment advice.