Chinese stocks were among the world’s best performing in 2014, rising by over 43%. This was second only to Argentina. 2014 was also the year China’s economy surpassed United States’, becoming the world’s largest.
Despite fears over a slowdown, the World Bank still expects China’s GDP growth rate will exceed 6% for the foreseeable future. The 6%+ growth range is something most central bankers in the world can only dream about, even if the Chinese economy moves slower than before.
There’s a lot of talk concerning weaker Chinese manufacturing data. The purchasing managers index (PMI) recently 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. They’re making higher-cost products and using less resources while doing so. This is proven by a healthy growth of export value year-on-year.
Places like Vietnam and Indonesia are outcompeting China on price as labor and overhead costs rise. Businesses and the government realize this. So they’re now 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 which will profit from this trend in the new year.
1. 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. Crude oil prices are down below US$60 a barrel, just barely over the cost of production for many oil companies, and they probably won’t fall much further without a supply cut.
Macroeconomic conditions, lucrative deals made with Russia, along with oil prices having room to rise make Sinopec one of the best Chinese stocks.
2. Sinovac Biotech
(NASDAQ: SVA) (P/E Ratio: 78.48)
Sinovac is a pharmaceutical firm which researches, develops, and manufactures vaccines that protect against diseases such as hepatitis, Japanese encephalitis, and influenza. The company is now developing vaccines for human rabies and universal pandemic influenza.
With 1.3 billion people, an aging population, and rising birth rate, vaccinations will have strong demand in the future.
3. Ping An Insurance Company
(SEHK: 2318, SHA: 601318) (P/E Ratio: 15.36)
Ping An is the largest insurance company in China. They provide 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, show the company has great promise.
EDITOR’S UPDATE FOR 2017: These stocks performed well over the past few years and our predictions were accurate. Want some more recent Chinese stock picks? Look at our analysis of Zhejiang which is a major developer of expressways and infrastructure in China.
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