The Shanghai Composite erased its year-to-date gains with the stock market dropping by around 40% over a three month period between June and August. Most people will tell you that the cause of this is due to “slower growth” in the world’s second largest economy.
While China will probably not continue at a growth rate of 7% to 8%, that doesn’t take away the fact it is still the fastest growing large economy in the world. For comparison, Brazil’s GDP growth was 0.1% in 2014, Russia’s was 0.6%, and the United States’ was 2.4%.
Heck, most central bankers would kill to have their nation’s economy grow by even 6%. Assuming China’s growth dropped to that amount (analysts at Fitch, Goldman Sachs, and the IMF are predicting 6.8% for 2015), it would still be the 7th fastest growing non-frontier market economy in the world.
Whether or not you think a 40% decline in Chinese stocks as a whole is justified, there are many equities that have been measurably beaten down beyond any reasonable level. Here is a short list of just three.
SAIC Motor Corp. Ltd. (SHA:600104)
SAIC Motors, China’s largest car manufacturer by total assets and sales, has dropped to 16.8CNY per share from its 52 week high of 29.18CNY. This is despite a dividend yield of 7%, a P/E ratio of 6.5, an ROI and ROE well above the industry average, international expansion plans, and all sorts of other great fundamentals.
The recent Volkswagen scandal has sent shockwaves around the auto industry worldwide and this has, for no justifiable reason, also panicked SAIC shareholders over the past week or two. A great buying opportunity presents itself here.
GD Power Development Company (SHA:600795)
One of China’s “Big 5” electricity producers, it is also perhaps the most focused on renewable and clean energy. Everyone knows that China has a pollution problem – especially those in government.
As Beijing continues to urge businesses to use less coal and more solar panels, wind farms, and dams, GD Power is extremely well positioned to take advantage of government grants and investment.
GD Power is trading at 12 times earnings, has a dividend yield of around 4%, has strong growth for a utilities company, and is expanding internationally into Myanmar and other countries in the region.
Industrial and Commercial Bank of China (SHA:601398)
Named the largest company in the world this year by the Forbes Global 2000 rankings, ICBC has lost around 25% of its value over the summer. Banks are usually among the worst performers in an economic crisis, but GDP growth of 6.8% is only a “crisis” to scaremongers.
There are still fears about ICBC’s bad loans, but a low P/E ratio of around 5, a strong dividend yield of nearly 6%, access to over 1.3 billion consumers, and support from Beijing all bode well for the world’s largest company in the world’s most populous nation.