Recent times have not been easy for the world’s number one economy. China has reported declining growth with the latest number estimated at below 7%. Among those hit hardest are Chinese bank stocks and manufacturers.
But this doesn’t mean everything in China will take a turn for the worse – at least not forever. The first shock may have had an exaggerated effect, taking a heavier toll on the outlook on the Chinese economy.
With that said, InvestAsian believes the Chinese stock market will make a swift recovery after the initial drop. Many listed companies have strong fundamentals.
An economy cannot be fundamentally strong without financial institutions serving as its backbone. However, the stock picks today are not the Chinese financial institutions themselves but the players behind them.
Chinese Bank Stocks in the Backstage
Among the many behind the scene players found on the Chinese stock market, two companies stand out the most. Operating in the background, these two operate hand-in-hand to form a strong team. Each plays a crucial role which the other doesn’t.
Julong would be the brawn if the two companies mentioned above are the brain and brawn of a two-man team. A China-based company, Julong primarily deals with the research, development, and manufacturing of financial machines.
Their many product lines include currency sorters, banknote strapping machines, currency counters, and other self-service machines. Its customer base ranges from domestic commercial banks as well as corporations, both domestic and international.
Julong stock is currently being sold at 17 CNY, a shadow of its former price which once peaked at 56.30.
Not the biggest business in the market yet one of the best, Julong boasts strong financial performance and sound fundamentals. They feature the highest operating metrics in this particular sector. Julong has 30.44% return on average equity, a whole 8% higher than the closest competitor.
One of the biggest contributors to the leading ROI is Julong’s net profit margin of 32.59%. This is also the industry’s best.
GRG Banking Equipment Co., Ltd.
The reason GRG is termed the brain in this tag team combo is because of its main product.
Another Chinese firm, GRG specializes in system software related to many of the banking industry’s machines. Their production of machines is few, with just automatic teller machines and automatic fare collection systems. Their manufacturing of system software is boundless though.
GRG shares closed at 8 CNY, much less than a few months back when it peaked at 51.90 CNY. Despite a fall in share prices, GRG is the second biggest player in terms of market capitalization and performing better than most.
With extremely high returns of over 20%, resulting from high profit margins of more than 25%, GRG is definitely one of the strongest performers in the financial institution service provider market right now.
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, giving access to all companies on the Shanghai Stock Exchange including Julong and GRG.
Want to buy stocks in China? You might be interested in our analysis of Daqin Railway – the nation’s largest transporter of coal and other resources.
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