Chinese stocks were among the best performing in 2014, growing by over 43% – a rise second only to Argentina’s market. 2014 was also the year that the Chinese economy surpassed that of the United States’, becoming the largest in the world.
Despite fears about a potential slowdown, the World Bank still expects China’s GDP to grow at a rapid pace of 7% in 2015 and even if the country’s economic expansion is slower than before, it could be at a rate that most central bankers could only dream about.
There has been much talk about weaker Chinese manufacturing data. In December, the purchasing managers index (PMI) fell to 49.5. Any number under 50 indicates a contraction in the industrial sector.
However, the PMI does not take into account the value of goods – only some measures of activity. The reality is that China is moving up the value chain, making higher-cost products, and using less resources while doing so. This is proven by a healthy growth of export value year-on-year.
As labor and overhead costs rise, China is being outcompeted on price by countries such as Vietnam and Indonesia. Businesses and the government realize this, and are in the process of shifting to an economy more oriented toward the service sector and based on manufacturing higher-end products.
Here are three of the best Chinese stocks that look to profit from this trend in the new year.
China Petroleum & Chemical Corp
(NYSE: SNP, SEHK: 0386) (P/E Ratio: 9.20)
China Petroleum & Chemical Corp., more commonly known as Sinopec, is China’s largest producer of oil and gas. With crude oil prices down below US$60 a barrel, just barely over the cost of production for many oil companies, they seem unlikely to fall much further without supply being cut. Macroeconomic conditions, combined with recent lucrative deals made with Russia and several Middle Eastern countries, make Sinopec a solid play for the long term.
(NASDAQ: SVA) (P/E Ratio: 78.48)
Sinovac is a pharmaceutical company that researches, develops, and manufactures vaccines that protect against diseases such as hepatitis, Japanese encephalitis, and several different types of influenza. The company is currently developing vaccines for human rabies and universal pandemic influenza. With 1.3 billion people, an aging population, and rising birth rate with the relaxation of China’s one-child policy, vaccinations look to have a strong demand in the future.
Ping An Insurance Company
(SEHK: 2318, SHA: 601318) (P/E Ratio: 15.36)
Ping An is the largest insurance company in China, providing diversified insurance products to individuals and businesses in Mainland China, Hong Kong, and Macau. A rising trend of property and asset ownership by both consumers and corporations, along with Ping An’s plans to expand internationally into developing markets show that the company has great promise.