Back to top

8-Month High PMI Awakes the Chi in China Economy: 4 Top Picks

Read MoreHide Full Article

Per the latest report from China on May 31, manufacturing activity in the world’s second-largest economy gained traction in the month of May. The official Chinese manufacturing Purchasing Managers' Index (PMI) hit an eight-month high in May. Robust demand-supply dynamics and an upsurge in global commodity prices set the tone for such gains.

Further, the International Monetary Fund recently vested its confidence in China’s economy by stating that the country would experience steady economic growth in the days ahead. Under such circumstances, investing in stocks from China seems prudent.

Manufacturing Activity Booming

Factory activity in China surged in May, more than initially estimated. The official manufacturing Purchasing Managers' Index (PMI) came in at 51.9 last month against an estimate of a dip to 51.3 from 51.4 in April. Any reading above 50 indicates that the economy is expanding.

The metric surveys large companies and state-owned enterprises in China. This was its highest level since October 2017. Further, this was also the 22nd straight month that China’s official PMI exhibited expansion. Moreover, production increased at the fastest pace in the past six months and growth in new orders notched up an eight-month high.

Such gains were made possible by steadily rising commodity prices. Moreover, the report also eased tensions emanating from threats of economic contraction from trade-war tensions, with the United States and China’s measures to rein in the latter’s humungous debt load.

IMF Lauds China’s “Rebalancing” Act

In a report published in Beijing on May 30, the International Monetary Fund stated that China would stay on track to achieve sustainable growth. The report also stated that China’s shift of focus from “high-speed” to “high-quality” growth made the Washington-based organization confident about the Asian giant’s growth prospects.

This report came right after the conclusion of IMF’s two-week annual review visit to China with top notch leaders from the country, the likes of which included Vice-Premier Liu He and central bank governor Yi Gang.

Beijing’s consistent efforts to reduce financial risk while making structural adjustments to its economy would ensure sustainability of its growth.

Per David Lipton, the IMF’s first deputy managing director, an acceleration in de-risking of the financial sector, deceleration in credit growth, reduction in overcapacity and intensifying anti-pollution efforts would steer the Chinese economy toward sustainability.

4 Top Stocks

A booming manufacturing sector even as overcapacity is curbed has helped China in maintaining a steady rate of growth. Robust demand for Chinese goods abroad have also boosted the country’s fortunes.

Further, as the IMF remains positive about growth in the Chinese economy in 2018, there are multiple reasons for investors to consider stocks from the country. In this context, we have selected four stocks that are expected to gain from these factors. 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.

Momo Inc. (MOMO - Free Report) is an operator of a mobile-based social networking platform in China.

The company is based out of Beijing and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 32.20%. The Zacks Consensus Estimate for the current year has improved 3.5% over the past 60 days.

Baidu, Inc. (BIDU - Free Report) is a provider of Internet search services in China as well as across the globe.

The company is based out of Beijing and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 7.46%. The Zacks Consensus Estimate for the current year has improved 14.6% over the past 60 days.

China Petroleum & Chemical Corporation (SNP - Free Report) engages in exploration, production, refining and distribution of oil and gas.

The company is based out of Beijing and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 62.84%. Shares of the company have gained 1% over the last 30 days.

Hollysys Automation Technologies Ltd. (HOLI - Free Report) is a provider of automation and control technologies and related products in China as well as parts of Asia.

The company is based out of Beijing and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 57.76%. Shares of the company have gained 9.3% over the last 30 days.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>



More from Zacks Analyst Blog

You May Like