The world’s second-largest economy China has been growing by leaps and bounds for the past one year. Further, the Asian Development Bank stated in a report on Apr 11 that China would keep growing more than 6% in 2018 as well as 2019. The recent shift of focus from manufacturing to services has been pivotal in China’s economic growth story.
Finally, Chinese President Xi Jinping recently announced plans to patronize global trade and set up policies to boost foreign investments in China. Under such broadly encouraging conditions, investing in stocks from China is expected to boost your fortunes.
ADB Expects China’s Growth to be Consistent
Despite China’s credit tightening, it has witnessed humungous growth in the past one year. If records are to be considered, China grew at an amazing 6.9% annual rate in 2017. In fact, the country experienced growth of 6.8% in the last three months of 2017.
Thus, growth actually slowed in the first quarter of 2018 to 6.7%. The reason for such a cooldown has been attributed to China’s efforts to rein in its humungous debt load as well as the recent weakness in the property market.
However, despite trade-war fears, GDP growth has remained intact amid robust trade data. Also, per the recent trade data released by the country, Beijing’s trade surplus with Washington increased by almost one-fifth in the first quarter of this year.
In a report published in Asian Development Outlook (ADO) 2018, the Asian Development Bank (ADB) stated that it expects the Chinese economy to flourish at a pace of 6.6% in 2018. Based in Manila, Philippines, the bank also expects the Asian giant to exhibit a 6.4% growth in 2019.
The report also stated that such stupendous growth would be achieved on the back of increased demand for Chinese products in both domestic and international markets. Moreover, the Chinese government itself estimated in March that the Chinese economy would accelerate by 6.5%. Experts are of the view that China’s economic policy focuses more on financial stability and a ‘sustainable growth trajectory.’
Further, China’s growth has mainly been propelled by strength in its services sector, which advanced 8% in 2017. Also, the fact that the Chinese government focuses more on ‘addressing debt issues’ that has riddled the economy would go a long way in propelling China’s growth.
China’s Debt Burden Did Not Retard Growth
Of late, there has been a shift in focus toward services and consumption within China, both of which constitute a major chunk of the already humungous Chinese economy. The reason for moving toward a consumer centric economy was that such industries require low investments and therefore eases the credit load.
Moreover, growth in such areas is faster than conventional industries. Further, as manufacturing keeps diminishing in China, services have actually eaten into the economic pie. Also, manufacturing is heavily dependent on loans and increases debt burden on an economy. The diminishing trend in manufacturing in China has actually led to decreasing debt load on the economy. As a matter of fact, credit growth within China decreased to around 12% in the last one year. Lastly, decreasing debt liability will finally lead to financial stability in the economy.
Xi Jinping Vests his Faith in Chinese Economy
In a speech at the Boao Forum in Hainan province in China on Apr 11, the country’s president Xi Jinping said that he is optimistic about the economy there. He also stated that China is opening up newer avenues for both domestic and foreign investments, indicating that he supports globalization.
Xi added that the Chinese government planned to lower tariffs on autos as well as protect the intellectual property rights of foreign companies operating within China.
Such comments also eased trade war-related tensions between the United States and China as he stressed the fact that Beijing is not in favor of any sort of trade surplus and is rather interested in increasing imports. He also stated that the country would adopt newer policies that would lead to a massive opening up of the Chinese economy to the world at large.
4 Best Choices
ADB’s recent forecast about Chinese economic growth and encouraging comments from Xi Jinping stresses on China’s resilience. Further, impressive economic growth despite a huge debt burden and Jinping’s promise to open China up to more liberal and global trade even as domestic investments are increased implies that investing in stocks from China would be prudent.
In this context, we have selected four stocks that are expected to gain from China’s stupendous economic growth. These five stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Autohome Inc. (ATHM - Free Report) is an operator of an online destination for automobile consumers in the People's Republic of China.
The company is based out of Beijing and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 42.97%. The Zacks Consensus Estimate for the current year has improved 18.2% over the last 60 days. Autohome has gained 60.6% in the last six months.
Kingdee International Software Group Company Limited (KGDEY - Free Report) is an investment holding company.
The company is based out of Shenzhen and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 47.33%. The Zacks Consensus Estimate for the current year has improved 14.2% over the last 60 days. Kingdee International Software Group has gained more than 100% in the last six months.
58.com Inc. (WUBA - Free Report) is an operator of online classifieds and listing platforms.
The company is based out of Beijing and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 11.29%. The Zacks Consensus Estimate for the current year has improved 2.6% over the last 90 days. 58.com has gained 21.6% in the last six months.
Yanzhou Coal Mining Company Limited is involved in mining, processing, sale and exploration of coal in China.
The company is based out of Zoucheng and carries Zacks Rank #2. The expected earnings growth rate for the current year is 17.19%. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 60 days. Yanzhou Coal Mining has gained 25.1% in the last six months.
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