On Apr 17, China’s stocks closed at their highest level in 13 months after unexpectedly strong data indicated that growth has picked up in the world’s second-largest economy. Most analysts and market watchers now firmly believe that the stimulus measures initiated by Chinese premier Li Keqiang are having their desired impact.
Meanwhile, optimism over a near-term U.S.-China trade deal continues to grow. An agreement between the two countries will bring to an end a long running dispute which had hit China’s economy hard.
With Chinese benchmarks outperforming their American counterparts this year, it would be imprudent to sit out a searing rally. This is why it makes sense to pick up China’s stocks at this time.
Q1 GDP Defies Expectations, Key Economic Metrics Improve
Going by official data, China’s GDP increased at 6.4% compared to the year-ago period, defying expectations that it would decline further. A Reuters poll of analysts had estimated that GDP growth would fall to a pace of 6.3%.
The increase in economic activity was primarily supported by a notable improvement in industrial production. This key metric increased 8.5% from the year-ago quarter in March, breezing past Reuters’ estimate of 5.9%. This is the sharpest pace of growth recorded since July 2014.
Additionally, retail sales increased 8.7% year on year in March, exceeding Reuters’ estimate of 8.4% as well as the figure of 8.2% recorded in February. This served to allay fears that consumer confidence in China was flagging in the face of tough economic conditions.
Further, real estate investment increased marginally to 11.8% during the quarter. Fixed-asset investment expanded 6.3% year over year in the first quarter, matching Reuters’ estimates. The pace of construction starts improved in March while new home prices increased at a faster pace.
Stimulus Measures, Trade Deal Hopes Boost China Stocks
Analysts attributed the recent outperformance to the economic stimulus measures implemented by the Chinese government. Market watchers think the government will announce further stimulus measures as long as uncertainty around trade relations with the United States persists.
But investor optimism over a near-term trade deal is growing. Negotiators from the Chinese side have reportedly made unprecedented offers to prevent forced technology transfers. U.S. negotiators on their part have supposedly “watered down demands” that China should cut reduce their massive industrial subsidies.
An improving economy and optimism over trade negotiations have combined to fuel a massive rally in Chinese equities this year. The Shanghai Composite index finished at its highest level since Mar 21, 2018 on Apr 17.
As of Wednesday’s close, the Chinese benchmark had gained more than 30% year to date. The blue-chip CSI 300 has increased more than 35% while the Shenzhen Composite has gained more than 40% during the same period.
Fresh GDP data released on Wednesday clearly indicates that China’s economic situation has improved significantly. Other economic indicators released simultaneously bolster such a view. Government stimulus measures are having their desired impact, boosting the country’s equities to fresh highs.
Growing optimism over a near-term U.S.-China trade deal is also powering China stocks higher. This is why it makes good sense to add stocks from the country to your portfolio. However, picking winning stocks may prove to be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.
Qudian Inc. QD is a provider of online small consumer credit products primarily in the Peoples Republic of China.
Qudian has a Zacks Rank #1 (Strong Buy) and VGM Score of B. The company’s expected earnings growth for the current year is more than 100%.
LexinFintech Holdings Ltd. LX is an online consumer finance platform for young adults primarily in China.
LexinFintech has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 16.3% over the past 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
JD.com, Inc. JD operates as an online direct sales company in China.
JD.com has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 59.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 28.6% over the past 60 days.
China Life Insurance Company Limited LFC is a leading provider of life insurance in China.
CNOOC has a Zacks Rank #2 and VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The company has expected earnings growth of 31.3% for the current year.
OneSmart International Education Group Limited ONE is a provider of tutoring services in China.
OneSmart International has a Zacks Rank #2 and VGM Score of B. The company has expected earnings growth of 81.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.6% over the past 30 days.
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JD.com, Inc. (JD) : Free Stock Analysis Report
China Life Insurance Company Limited (LFC) : Free Stock Analysis Report
OneSmart International Education Group Limited (ONE) : Free Stock Analysis Report
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