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 about a potential slowdown, the World Bank still expects China’s GDP to grow at a rapid pace of 7% in 2015. Even if the nation’s economy moves slower than before, the 6%+ growth range is something most central bankers can only dream about.
There’s been a lot of talk concerning 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. 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.
China is being outcompeted on price by countries like Vietnam and Indonesia 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.
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 more without supply being cut. Macroeconomic conditions, lucrative deals made with Russia, along with oil prices having room to rise make Sinopec one of the best Chinese stocks.
(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 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, show the company has great promise.
EDITOR’S UPDATE FOR 2017: Our predictions ended up accurate, and these stocks performed well in 2015. Want some more recent stock picks? Look at our analysis of Zhejiang Stock, which is a major developer of expressways and infrastructure in China.
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