The Shanghai Composite erased its year-to-date gains. The market dropped by around 40% over a three month period between June and August. Most people will tell you this is because of “slower growth” in the world’s second largest economy.
China will probably not continue at a growth rate of 7% to 8%. However, that doesn’t take away the fact it ‘sstill 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 rate, they’d still be the 7th fastest growing non-frontier market economy in the world.
You may or may not believe a 40% decline in Chinese stocks is justified. Regardless, there are many equities which are beaten down beyond any reasonable level.
Here’s a short list of three of the best stocks in China right now. We feel that they are all extremely undervalued.
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 sent shockwaves throughout the global auto industry. This, for no justifiable reason, also panicked SAIC shareholders.
A great buying opportunity presents itself here. SAIC shares should gain further from the firm’s global expansion plans.
GD Power Development Company (SHA:600795)
One of China’s “Big 5” electricity producers, GD Power is the most focused on renewable and clean energy. We all know China has a pollution problem – especially those in government.
Beijing continues urging businesses to use less coal and more solar panels, wind farms, and dams. GD Power is very 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%, and boasts strong growth for a utilities company. They’re also 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 largest company in the world’s most populous nation.
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