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11 stocks that will benefit from China’s stimulus

China, Stocks

Written by:

Alex Yeo

China is stimulating the economy to hit its GDP target of 5.5%:

China’s plans to bolster growth via fiscal stimulus as its zero covid policy meant that it has carried out widespread lockdowns where covid cases occurs, thus depressing economic activity in that city or region.

To counteract the lockdown and regulate economic activity within its target range, analysts have estimated that China has announced 32.86 trillion yuan which is approximately nearly US$5 trillion of stimulus till date.

On top of fiscal stimulus, China is also using monetary policy, its other weapon in a twin effort to secure economic growth. Monetary policy support so far is estimated at 2.64 trillion yuan and this includes hundreds of billions of yuan in liquidity unleashed by the People’s Bank of China through policy loans, cuts to reserve ratios for banks, as well as cheap loans to help small businesses and green projects during the pandemic.

The PBOC has also been trying to drive down deposit rates by lowering the benchmark lending rate for long-term loans, thus giving Chinese lenders an incentive to lower the cost of borrowing and boost slumping demand.

With such a large amount of spending and possibly more to come, we have identified sectors which will benefit more from the stimulus and provide some examples of a company from that sector.

11 stocks that will benefit from China’s stimulus

SectorCompanyTicker
InfrastructureChina RailwaySHA:601390, HKG:390
Construction materialsAnhui Conch CementSHA:600585, HKG:914
Construction materialsBaoshan Iron and SteelSHA:600019
Warehousing and logisticsShenzhen InternationalHKG:152
LogisticsJD LogisticsHKG:2618
EnvironmentEB EnvironmentHKG:257
EnergyXinjiang GoldwindSHE:002202, HKG: 2208
AgricultureSinofertHKG:297
AutomobileNIONYSE:NIO, HKG:9866, SGX: N3IA
TechTencentHKG:700
Financial servicesBank of ChinaSHA:601988, HKG:3988

Infrastructure and construction materials

1. China Railway (SHA:601390, HKG:390)

One of the ways China stimulates its economy is via infrastructure spend. China believes that to first build a vibrant city, one must first equip the city with adequate transport links. China Railway is one of the largest multi-functional integrated construction group in China and Asia and is also a State Owned Enterprise (SOE). The company has a full range of construction-related services, including infrastructure construction, survey, design and consulting services and engineering equipment and component manufacturing.

It specialises in the construction of key transport infrastructure such as railways, highways, bridges, tunnels and metropolitan railways (including subways and light railways). The company has also constructed infrastructure such as hydroelectricity projects, ports, docks and even airports

China Railway has expanded globally and has been involved in multiple projects in multiple countries such as the Singapore Sengkang LRT and Venezuelan Northern Plain Railway projects.

2. Anhui Conch Cement (SHA:600585, HKG:914)

Cement is an essential construction material and Anhui Conch Cement, a SOE, is one of the largest cement manufacturer, headquartered in Anhui Province in China. It has a larger proportion of revenue coming from east and central China which are the industrialised part of China. It also has two other listed subsidiaries China Conch Venture Holdings (HKG:586) whose core operations are in waste to energy projects and China conch environment (HKG:0587) which focuses on industrial solid and hazardous waste treatment.

3. Baoshan Iron and Steel (SHA:600019)

Steel, which is made from Iron is another essential construction material. Baoshan Iron and Steel is also a subsidiary of a SOE and one of the largest steel manufacturer in China. It has a sizeable market share in industries such as high-end automotive, home appliances and oil pipes.

Warehousing and logistics

4. Shenzhen International (HKG:152)

Shenzhen International , also a SOE, focuses on 2 key segments, namely logistics and toll roads. The company is in in major first tier cities, strategic regions and economic zones such as the Guangdong-Hong Kong-Macao Greater Bay Area, the Yangtze River Delta and the Pan-Bohai Rim and invests, construct and operate logistic infrastructure projects including integrated logistics hubs and toll roads and provides high-end and value-added logistics services.

Currently, toll roads form more than 50% of total assets which is held under Shenzhen Expressway (HKG:548) a 51.56% owned subsidiary of Shenzhen Intl while logistics assets form 26% of total assets. The company itself has been focusing its capital expenditure on logistics assets and there are 9 new warehouses with a total site area of more than 2 million sqm under construction.

Shenzhen International also has a stake in Shenzhen Airlines which should serve as an additional boost to the company as China gradually opens up domestically and eventually opens up internationally.

5. JD Logistics (HKG:2618)

JD Logistics was listed in May 2021 with JD.COM owning nearly 65% and is the leading technology-driven supply chain solutions and logistics services provider in China, offering a full spectrum of supply chain solutions and high-quality logistics services enabled by technology, ranging from warehousing to distribution.

China’s rapid digitalisation of the economy has created increasingly multi-faceted customer demands. Such demands are currently serviced by a fragmented group of incumbent logistics players and are severely underserved, which present significant opportunities for supply chain solutions and logistics services providers like JD Logistics.

Environment and clean energy infrastructure

6. EB Environment (HKG:257)

China Everbright Environment or EB Environment, also a SOE, is the largest environmental protection enterprise in China and the world’s largest waste-to-energy investor and operator.

EB Environment is the first one-stop integrated environmental solution provider in China, with a focus on environment, resources and energy. Its main businesses cover waste-to-energy and integrated waste treatment, integrated biomass utilisation, hazardous and solid waste treatment, environmental remediation, water environment management, as well as environmental protection industrial parks.

The Company has a business presence in China, as well as overseas markets of Germany, Poland, Vietnam and Singapore.

With China having been hit by power shortages in the past, having struggled to balance electricity suppliers with demand, EB environment plays a part in ensuring China’s electricity supply is adequate, especially in the winter months.

7. Xinjiang Goldwind (SHE:002202, HKG:2208)

Xinjiang Goldwind is a world leading wind turbine technology and energy solutions provider. Similarly, it’s a SOE and is the dominant player with a an estimated 28% market share in China, nearly double its closest competitor Ming Yang Smart Energy (SHA:601615) who has an estimated 15% market share.

China was home to many of the world’s most polluted cities and is the world’s largest emitter of greenhouse gases. The Beijing-Tianjin-Hebei (Jing-Jin-Ji) region has experienced particularly severe air pollution, with an annual average fine particulate matter (PM2.5) concentration far exceeding both China’s national standard and the standard advised by the World Health Organization (WHO).

Although the most prevalent source of renewable energy for China now is still hydroelectric power due to its early start as commercialisation was available much earlier, China is now the world leader in wind power generation as China has rapidly increased its installed capacity of wind power over the years.

Agriculture

8. Sinofert (SHE:002202, HKG:2208)

Sinofert is the largest fertilizer enterprise in China. It is engaged in chemical fertilizer business in China and is 53% owned by Sinochem Group, a SOE and 22% owned by PotashCorp, one of the largest fertiliser producers in the world.

Food security has been listed by the Chinese government as equally important as national energy security and finance security in the face of the ever evolving China-U.S. trade war, Russia-Ukraine conflict and supply chain disruptions due to the COVID-19 pandemic.

Chinese President Xi Jinping has previously declared that food security is an important foundation for national security and the current stimulus plan includes for the Chinese government subsidising cost of agricultural materials such as fertilisers.

Automobile

9. NIO (NYSE:NIO, HKG:9866, SGX:N3IA)

Many countries globally are discouraging or even imposing a mandate on limiting internal combustion engine (ICE) vehicles on the road while incentivising the usage of electric vehicles (EV). This is part of the green transition globally to attempt to become carbon neutral and environmentally sustainable.

The Chinese government has set a target for EVs, which include battery-powered and hybrid electric vehicles, to make up 20% of new car sales by 2025. China has provided subsidies for EV cars to encourage which will likely keep buyers interested in EVs.

With supercharging of an EV car currently taking at least 30 minutes, NIO decided to build battery swap stations which allows a car owner to swap the depleted battery for a fully charged battery in under five minutes.

NIO is now one of the largest battery swap station owner with more than 900 stations globally of which more than 800 are in China. We previously opined here that one of the many reason to Tesla’s current superior position is due to its infrastructure ownership of more than 30,000 superchargers and NIO is building itself into that position as well.

NIO recently commenced trading on SGX and displayed its NIO EP9 and ES8 models in Singapore during its listing day, likely to much fanfare, possibly part of its marketing plan to build up a customer base in Singapore.

Tech and entertainment

10. Tencent (HKG:700)

Culture, arts, sports and Entertainment was part of the list of industries listed to benefit from the stimulus package. In addition, China’s infrastructure push includes digital infrastructure assets such as data centres. Data centres store data and are a core component of cyber security.

Tencent is China’s biggest technology and entertainment conglomerate. It is also currently the third largest cloud computing company after Huawei and Alibaba and operates more than 40 data centres (as of 2021).

Other digital infrastructure assets with government support include 5G networks, artificial intelligence (AI) and Internet of Things (IoT). With Tencent being a huge investor in the tech sector, it has ownership stakes in pretty much every segment of the sector and will likely benefit from this trend.

Financial services

11. Bank of China (SHA:601988, HKG:3988)

The Chinese government is turning to state-owned banks once again to help rescue an economy under strain, ordering them to provide funding for infrastructure projects and to lend more money to stimulate the economy. Bank of China is one of the big four Chinese banks and it is likely that all four will benefit from increased investment spending. We have previously covered the four Chinese banks in detail.

It is good to be aligned with China government policies

After reading through this list of China stocks, one may realise that many of these companies are in industries that are aligned to China’s 14th five year plan, which is its core economic development strategy mapping the country’s economic development, setting growth targets and platform for launching reforms. Many of these stocks are also State Owned Enterprises which will benefit directly from the government’s investments to stimulate economic growth.

If the companies listed here can capitalise on this opportunity provided by the stimulus and grow sustainably in the medium to long term, there is no doubt that the stock prices would eventually grow to reflect this growth.

P.S. if you’re looking to pick some China growth stocks for your portfolio, why not join Alvin at his upcoming webinar to learn about his 3Cs China investing framework?

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