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3 Chinese ADRs to Gain From a Likely Trade Deal

Zacks Equity Research

A trade agreement between the United States and China is still uncertain despite encouraging comments from officials of both nations. However, the recent enthusiasm of the two nations in reaching a deal made investors somewhat optimistic lately.

There has been a decent progress on the trade deal front in the past few weeks. Particularly, comments by President Donald Trump and economic advisor Larry Kudlow earlier this week hinted at a potential trade deal.

Let us, thus, take a look at some U.S.-listed Chinese stocks that will benefit the most if the a deal materializes.

Rising Optimism on U.S.-China Trade Relationship

The U.S.-China trade war has rattled the financial markets for 19 months, as industries reliant on trade suffered because of the high tariffs that the two countries imposed on each other’s imports. However, there has been some relief since October 2019 after the two countries agreed on a phase one deal.

Two major developments emerged out of the October trade talks. First, Trump decided not to proceed with an escalation in tariffs on about $250 billion worth of Chinese goods from the incumbent 25% to 30% beginning Oct 15. Second, a 15% tariff imposition on about $156 billion of Chinese products (known as List 4B) from Dec 15 was also kept on hold.

While speaking at the Economic Club of New York on Nov 12, Trump blamed previous U.S. leaders who negotiated trade deals with China with scope for manipulation. However, the president repeated that a “significant phase-one trade deal” with the China could be reached.

Addressing the issue of cancelling punitive tariffs, Trump said, “China would like to get somewhat of a rollback, not a complete rollback, because they know I won't do it…Frankly, they want to make a deal a lot more than I do.”  

Trump’s comments aptly point toward the trade war’s adverse effect on China. China’s factory activity shrank for the sixth straight month in October, as the Purchasing Managers’ Index for manufacturing came in at 49.3. A reading below 50 indicates contraction.

Later on the same day, Kudlow said in an interview that there is a possibility of tariffs to be adjusted, but there would be no adjustment until a final deal is reached. Kudlow’s comments were in response to China’s demand for the existing tariffs to be removed as part of the phase one trade deal.

He said that the two countries had made progress on issues such as intellectual property theft, financial services, currency stability, commodities and agriculture. Kudlow added that there could be some issues as part of a second-phase agreement with China.

Also, the agreement, which was anticipated to be signed at the APEC Summit in November, has been deferred to December.

Our Choices

We have, therefore, shortlisted three U.S.-listed Chinese stocks that have outperformed the Zacks S&P 500 composite so far this year and are well positioned to do even better if a final deal between the two countries is reached. After all, business growth of these companies will accelerate if the trade barriers are removed.

These three stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

NetEase, Inc. NTES is an operator of an interactive online community in China. The company offers online gaming services, e-commerce and advertising services etc. The company carries a Zacks Rank #1. The Zacks Consensus Estimate for Coherus BioSciences’ current-year earnings has risen 1.1% over the past 60 days.The stock has gained 25.9% year to date versus the S&P 500’s 21.9% growth. You can see the complete list of today’s Zacks #1 Rank stocks here.

New Oriental Education & Technology Group Inc. EDU is a provider of private educational services in China. The company offers language training and test preparation courses, online education programs and overseas studies consulting services etc. The company carries a zacks Rank #1. The Zacks Consensus Estimate for Coherus BioSciences’ current-year earnings has risen 0.3% over the past 60 days.The stock has gained 118.4% year to date.

JinkoSolar Holding Co., Ltd. JKS is a designer, manufacturer and marketer of photovoltaic products. The company carries a Zacks Rank #2. The Zacks Consensus Estimate for Coherus BioSciences’ current-year earnings has risen 7.5% over the past 60 days.The stock has gained 62.3% year to date.

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