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5 Chinese Stocks to Keep Rallying, Trade War Wraps Up or Not

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It has been more than a year and half since the Trump government chose to impose tariffs on the import of a wide array of products. The initiative — taken to promote manufacturing in the country and to curb export expenditure — gradually evolved into a full-blown trade war with foreign trade partners, especially China.

Both countries as well as the global economy are presently grappling with the impacts of the trade war. While the U.S. corporate margins have been hit hard as tariffs have inflated cost of raw materials for many products, the China economy has also lost businesses over time. Additionally, aging population, the scarcity of skilled workforce and debt burdens have been hurting China’s economy.

Notably, the U.S. exports to China decreased 13.6% year over year in the first nine months of 2019. Also, the U.S. imports from China fell 14.4% during the same timeframe. The U.S. GDP increased 2.1% in the third quarter of 2019, while China’s GDP exhibited lowest year-over-year growth of 6% since the first quarter of 1992.

Additionally, the International Monetary Fund has softened its outlook on growth prospects of the global economy. In its October release, the institution lowered the world output growth forecast by 20 basis points (bps) to 3% for 2019 and by 10 bps to 3.4% for 2020. The 2019 projection is lower than 3.8% growth registered in 2017.

The growth projection for the U.S. economy has been lowered by 20 bps for 2019, while increased by 20 bps for 2020. The growth forecast for China economy has been lowered by 10 bps and 20 bps for 2019 and 2020, respectively.

Tariffs That Sparked the Trade War

In February 2018, the U.S. government implemented 30% tariffs on all imports of solar panels and 20% on import of washing machines. Notably, the solar panel imports excluded Canadian transactions.

In March 2018, the U.S. government decided on the imposition of tariffs on import of China aerospace, machinery and information communication technology products. It also imposed 25% tariffs on steel and 10% tariffs on aluminum imports.

These steel and aluminum tariffs attracted retaliatory measures by China in the form of tariffs on a wide array of products, including steel pipes, fruits, pork, wine, soybeans, recycled aluminum, chemicals, automobile and others.

Thereafter, initiatives to revise the product lists (the U.S. brought consumer products, textiles, construction materials, electronic equipment, automotive parts, agricultural products and other product categories under the tariff brackets) and tariff rates followed.

In May 2019, the U.S. government increased tariffs on a series of China imports from 10% to 25%. It also placed some restrictions (some revisions were made later) on export to China telecommunications giant, Huawei Technologies Co. Ltd.

Few Remedial Steps

Since the implementation of tariffs, a series of deliberations between the two countries to ease the tensions ended in no results.

To ward off some tensions, the U.S. government extended subsidies to its farmers. In December 2019, the U.S. government reached a phase-one trade deal with China that will likely help in easing some tariff-related woes. This deal will ease U.S. restrictions on import of China consumer goods, while China on its part will increase the purchase of U.S. products (especially agricultural products) in the coming years.

Additionally, the China government lowered taxes on corporations and businesses to ward off some of the tariff pressures. Further, currency devaluation has been done to make China products cheaper.

Despite the trade war, stock market performance in China has been quite promising. In the past year, the country’s major stock exchange, Shanghai Composite Index, gained approximately 22%. It lost roughly 28% in 2018.

Below we present five China stocks that have performed impressively in the past year and also exhibit growth prospects.

5 Promising China Stocks

These promising stocks can be of interest to investors seeking exposure in the China stock market.

                                 Past-Year Price Performance Chart



A brief discussion on the selected stocks is provided below:

Fanhua Inc. FANH: The Guangzhou-based company is engaged in the distribution of insurance products, including casualty and property products, as well as claim adjusting, consulting and other services, in China. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Its shares have rallied 16.3% in the past year. Also, positive revision in its earnings estimates is a healthy sign. In the past 30 days, the Zacks Consensus Estimate for the company’s earnings has been raised by 27.4% for 2019 and 17.6% for 2020.

LexinFintech Holdings Ltd. LX: Based in Shenzhen, the company is primarily engaged in the consumer finance business. It provides services online to educated adults in China. It presently sports a Zacks Rank #1.

In the past year, the company’s shares have rallied 92.3%. Its earnings estimates have been revised up by 19.9% for 2019 and 22.4% for 2020 in the past 60 days. In the next five years, earnings are projected to grow 17.5%.

NetEase, Inc. (NTES - Free Report) : The Beijing-based company is engaged in providing online gaming services, community services, online advertising, free e-mail services, micro-blogging services, entertainment content and wireless value-added services in China. The company presently sports a Zacks Rank #1.

In the past year, shares of the company have gained 29%. Its earnings estimates have been revised upward by 113.9% for 2019 and 15.7% for 2020 in the past 60 days. The company’s earnings are projected to grow 42% in the next five years.

TAL Education Group TAL: Based in Beijing, the company provides tutoring services to K-12 students in the People's Republic of China. The company currently carries a Zacks Rank #2 (Buy).

In the past year, shares of the company have surged 81.1%. Its earnings estimates have been unchanged for both years, ending February 2020 and 2021, in the past 30 days. The company’s earnings are projected to grow 27.3% in the next five years.

Vipshop Holdings Limited VIPS: The company, based in Guangzhou, is an online discount retailer in China. It offers branded products to consumers on the vipshop.com website. The company presently carries a Zacks Rank #2.

In the past year, its shares have surged 165%. The company's earnings estimates have been raised by 17.3% and 16.3% for 2019 and 2020, respectively, in the past 60 days.

Zacks Top 10 Stocks for 2020

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold.

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