The world’s gone though a lot of change lately. One is that the United States is no longer the world’s largest economy in terms of GDP (Purchasing Power Parity). China overtook them to rule the world.
Because of this, it shouldn’t come as a surprise that the Chinese car manufacturing industry is also the world’s largest. In fact, they’ve been at the top for awhile. The annual production of automobiles in China exceeded that of both the United States and Japan combined back in 2008.
China now does almost 30% of the entire world’s auto manufacturing. Consulting firm McKinsey & Company estimates the Chinese car market will increase tenfold between 2005 and 2030.
The country’s auto market is expected to continue growing at an exponential rate for the next 15 years. However, it’s currently seeing much slower growth due to a weak global economy.
Economists expect the short-term future will be grim for most Chinese auto manufacturers, They cite reasons such as the slowest economic growth in 25 years, along with a stock market decline discouraging buyers.
Yet even through one of the hardest times the economy faced in recent years, car sales in China are predicted to increase by 3%. Thus isn’t as much as last year’s 6%, but is still impressive considering all other factors.
Slow growth probably won’t last long though. The Chinese middle class is only just beginning to thrive.
SAIC Motor Still Strong
SAIC Motor Corporation Limited (SHA:600104) leads the nation’s auto industry. They’re the largest auto company on China’s A-share market. Involved in every step of the supply chain, SAIC Motor researches, produces, and sells both passenger cars and commercial vehicles.
SAIC Motor operates on their own, but is also involved in joint ventures with distinguished brands from around the world. These include General Motors and Volkswagen, among others.
In 2014, the Chinese automaker was ranked 60th on the annual Fortune Global 500 list.
SAIC Motor is confident in the future. Their recent earnings statement says, “In the short term, although the domestic market situation in the second half of the year remains grim after the macro economy’s stabilized recovery, there are still structural growth opportunities.”
Automobiles in China Still Part of Everyday Life
The company boasts some very impressive financial figures even during a poor economy. They exhibit one of the healthiest ROE in the industry with the last 4 years averaging 19%.
A P/E ratio of below 7 and P/B ratio of 1.24x, the company’s stocks are a top choice for investors seeking value.
Shares of SAIC Motors dropped sharply during the broad decline in the Chinese stock market. They’re now oversold though. SAIC should recover to its 52-week high of around CNY29.00 from its current price of CNY19.55.
The recent opening of the Hong Kong-Shanghai Stock Connect allows individual foreign investors to buy shares listed in mainland China for the first time. A brokerage account in Hong Kong is now more useful than ever. It gives access to all companies on the Shanghai Stock Exchange, including SAIC Motors.
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