October 22, 2018

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Weakness now is an opportunity to buy

Global Crisis

Global Crisis

continued from > Still too dependent on exports and investment

How ironic that the near-death experience of the world economy in 2008 originated in the US, the country that promoted aggressively the merits of private enterprise, free trade and using market forces to discipline behaviour, yet has now responded with the opposite policies of huge public subsidies, regulation and near-total state provision of mortgage finance!

While America looks increasingly like socialist, sclerotic Europe, China becomes more like the US in its 19th century capitalist heyday. It is, Bolton says, “the investment opportunity of the next decade.”

Investment bank JP Morgan recently predicted that China “will engineer a soft landing” with economic growth expected to bottom out in the first quarter of next year at 8 per cent.

It seems to me the very recent weakening in Chinese stock markets is more likely to be an opportunity to buy than a warning of an incipient ending of the bull trend.

CLSA Asia-Pacific’s strategist Christopher Wood recommends that investors use the current correction in Chinese markets to buy the shares of banks and insurance companies, which should benefit from higher interest rates. “Chinese banks remain one of the few ‘cheap’ areas left in blue chip Asia.”

He reminds us that the last time inflation and interest rates rose in China, in 2007, shares rose as investors interpreted the situation as positive for future economic growth.

Here are my own suggestions for a portfolio of China stocks – all are available to foreign investors through listings in bourses outside the country, nearly always in Hong Kong, often also in London, New York or Frankfurt…

MY CHINA SHARE SELECTIONS ————————————————

Div. 12 mo.
Ticker DY PE cover price
chg %
Anta Sports Products 2020:HKG 2.25 22 2.0 32 Retailing
Asian Citrus ACHL:LSE 1.17 12 7.4 88 Agriculture
Beijing Enterprises Holds. 392:HKG 1.36 19 3.8 8 Infrastructure
China Nat. Building Mat. 3323:HKG 0.47 14 14.8 6 Construction
China Oilfield Services 2883:HKG 1.16 13 7.9 57 Energy
China Overseas Land 688:HKG 1.50 13 5.0 -9 Real estate
China Shineway Pharma 2877:HKG 1.04 20 4.8 130 Healthcare
China Yurin Food 1068:HKG 1.82 17 3.1 51 Food
Haier Electronics 1169:HKG 0.00 28 n/a 113 Housewares
Hengan International 1044:HKG 1.75 36 1.6 25 Consumables
Huabao International 336:HKG 1.04 29 3.3 49 Chemicals
Ind&CommBank 1398:HKG 3.36 11 2.7 -14 Banking
Lianhua Supermarket H 980:HKG 0.91 31 3.5 89 Retailing
Link REIT 823:HKG 4.08 5 4.9 23 Real estate
Luk Fook Holdings 590:HKG 1.67 24 2.5 440 Jewellery
Mindray Medical MR:NYQ 0.74 20 6.9 -7 Healthcare
Shandong Weigao 1066:HKG 2.42 31 1.3 37 Healthcare
Want Want China 151:HKG 2.72 37 0.0 24 Food
Wumart Stores 8277:HKG 0.81 41 3.0 46 Retailing
ZTE Corp. 763:HKG 0.58 33 4.5 -2 Telecoms

Anta Sports Products designs, manufactures and sells sporting goods, including footwear, apparel  and accessories, throughout China. It is rated by Forbes as one of Asia’s best companies with revenues below $1 billion. It has an excellent earnings growth record and a respectable, well-covered dividend

Asian Citrus is China’s biggest producer and distributor of oranges, and has recently bought the top supplier of tropical fruit juices. Listed in London as well as Hong Kong, it has good growth prospects and the shares are reasonably priced. But wait for a correction.
Beijing Enterprises Holdings is a large conglomerate whose main focus is infrastructural services –natural  gas (it’s China’s biggest distributor) , highways, sewage and water, with 38,000 employees. It’s been showing respectable earnings growth and has a well-covered dividend.
China National Building Material supplies the construction industry with lightweight building materials and cement, as well as engineering services. Recently its earnings have been growing very strongly, but the share isn’t particularly expensive.
China Oilfield Services provides drilling, logging and well services, as well as marine support and transportation services for offshore facilities. It has been showing respectable earnings growth and its shares are inexpensive.
China Overseas Land & Investment is a long-established property developer and manager with interests in Hong Kong, Macau and many parts of China. One to buy when Beijing eases up its squeeze on the real-estate sector.
China Shineway Pharmaceutical is a focused play on the growth of medical services in China as it manufactures and supplies injectables and similar hospital consumables. It’s stock has been hot this past year. The company has been showing good earnings growth and has a well-covered dividend.
China Yurin Food is a focused play on rising living standards in China as it is a major meat processor and distributor. Investment bank J P Morgan recently made the stock one of its five top picks among midsized listed companies, estimating its annual sales growth for the first half of the year at an amazing 40 per cent. Earnings have been growing strongly in line.
Haier Electronics is another focused play on the burgeoning middle class, as it is the dominant supplier of washing machines and water heaters. Although it pay no dividend, its earnings have been growing strongly and the share price has rocketed this year.
Hengan International is a specialist supplier to the female market of personal hygiene and skin care products. As it’s a favourite of small-cap investment advisers, its shares are a bit pricey, but earnings growth has been strong.
Huabao International is a specialist producer of flavours and fragrances. Although a bit pricey, the share has enjoyed reliable long-term earnings growth and the dividend is well covered.
Industrial & Commercial Bank of China is the world’s largest. It is safe (largely owned by the Chinese state), has an excellent earnings growth record, yet is still relatively cheap, with a well-covered dividend yield of well above 3 per cent.
Lianhua Supermarket operates thousands of hypermarkets, supermarkets and convenience stores across 22 municipalities and cities. It is the largest listed food retailer and is, says GTI’s Bruce Albrecht, “an awesome cash generator.” The share’s a bit pricey, but earnings have been growing strongly.
Link REIT is one of Asia’s largest investment trusts, with a huge and growing income from rental of its commercial and residential assets in Hong Kong.  It offers a dividend yield of more than 4 per cent, almost five times covered.
Luk Fook has over two decades built a large and highly profitable business in the design, manufacture and marketing of jewellery, mainly of gold, with almost 600 retail outlets in China, Hong Kong, Macau, the US and Canada. The share has soared this year – so wait for a major correction before buying.
Mindray Medical is a specialist developer and manufacturer of medical devices for diagnosis, patient monitoring and life support. It services hospitals in China, the US, the UK, France and Germany. It has a very good earnings growth record and is listed in New York.
Shandong Weigao is a focused play on the growth of China’s healthcare sector as supplier of single-use medical products such as syringes, blood bags and stents. Its customer base embraces more than 5,000 hospitals, blood stations and clinics. Earnings growth has been outstanding, but the share valuation is high.
Want Want China is a giant of the snack food industry, supplying crackers, beverages and a wide range of similar products to China and other Asian markets. Its share has a strong, stable growth pattern, which accounts for its high valuation.
Wumart Stores is the Chinese retail chain sometimes compared to America’s Wal-Mart, with more than 400 owned and franchised convenience shops and hypermarkets, primarily in Beijing and the north. Growth has been good, but the share is pricey.
ZTE Corp. is one of China’s largest manufacturers of telecom equipment, with plants in the US, Brazil and Sweden as well as China. Recent earnings growth has been strong.

source and CopyRight OnTarget Newsletter by Martin Spring

A series of articles relating to > The Case for Investing in China Now

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