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4 China Stocks to Buy on Higher Consumer Confidence

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Global markets have been affected by China’s economic woes for some time now. A series of weak economic reports and the yuan’s movement have been the immediate trigger for the losses made by stocks. Steps taken by the government have had a mixed effect until now.

However, a recent survey of consumers indicates that investors across the world may be overreacting. The inherent strengths of the economy are still evident and adding these stocks to your portfolio at this time would be a prudent move.

Consumer Confidence Rises

The global consumer survey conducted by research company Nielsen indicates that consumer confidence increased to 107 for China during the fourth quarter. Released last week, the report also indicates that even though this represents a marginal increase of 1% over the quarter, it is well above the global average of 97. Additionally, it is in line with the Asia-Pacific region’s average for the quarter.

In fact, Chinese consumers have shown greater confidence than several mature economies. For instance, confidence levels have declined over the quarter for the United Kingdom, U.S. and Germany and stand at 101, 100 and 98, respectively. Additionally, the inclination to increase expenditure increased by 2 percentage points to 48% year over year marking a four-year high.

Are China Worries Exaggerated?

Concerns over China’s economy are perfectly legitimate. However, several factors indicate that the market’s reaction to the situation may be termed as an overreaction. For one, China’s economy increased by 6.9% last year. This was widely depicted as the worst pace of growth in 25 years. However, what such a depiction of events omits is the fact that this rate of growth is twice as much as mature economies and second to none of the major economies but India.

Secondly, the other major panic trigger -- flight of capital -- may also be a grossly misunderstood phenomenon. It may simply be a case of companies quickly paying off debts taken in foreign currency. Alternatively, they may be hedging against a weakening domestic currency over the short term and parking their deposits in dollars. 

The other significant pattern which has caused the markets much heartburn is the weakness experienced by China’s traditional strength, its manufacturing sector. However, such a conclusion fails to take into account the rising power of the country’s services sector.

Additionally, the government is making concerted efforts to transform the economy from one reliant on manufacturing into one powered by consumer spending. The Nielsen survey shows that respondents remain optimistic about job prospects over the next 12 months. In excess of 60% of them are confident about their personal finances over this period and have a very positive outlook about China’s job market.

Our Choices

The confidence shown by China’s consumers about its economy is an evidence of the fact that fears about the country’s economy are grossly overblown. It would not be prudent to ignore the country’s growth rate, which is still impressive as well as the steps being taken by the government to boost the markets and the economy.

Ignoring such factors would be justly unfair, despite the panic markets have shown over China’s economic situation. Instead, picking up China stocks with strong fundamentals would be a smart decision. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Daqo New Energy Corp. (DQ - Free Report) is engaged in the manufacture and sale of high-quality polysilicon to photovoltaic product manufacturers.

Daqo New Energy has a Zacks Rank #1 (Strong Buy) and its expected earnings growth for the current year is more than 100%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 7.48, lower than the industry average of 13.63. Its earnings estimate for the current year has improved 8.9% over the last 30 days.

NetEase, Inc. (NTES - Free Report) is an Internet technology company engaged primarily in the development of online games, e-commerce and related technologies in China.

NetEase has a Zacks Rank #1 and its projected growth for the current year is 22.8%. Its earnings estimate for the current year has improved 5.1% over the last 30 days.

Momo Inc. (MOMO - Free Report) provides a mobile-based social networking platform primarily in the Peoples Republic of China.

Momo has a Zacks Rank #2 and has expected earnings growth of 85.7% for the current year. Its earnings estimate for the current year has improved 27.2% over the last 30 days.

Geely Automobile Holdings Ltd. (GELYY - Free Report) is engaged in automobile manufacturing and related areas.

Geely Automobile has a Zacks Rank #2 and its projected growth for the current year is 28.41%. It has a P/E (F1) of 6.44, lower than the industry average of 7.52. Its earnings estimate for the current year has improved 6.1% over the last 30 days.

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