Analysts are currently very “bullish” on Chinese stocks. The share of buy recommendations in mainland stocks has reached its highest level since 2011 thanks to vaccine hopes. “Buy” ratings currently make up over 86 percent of all analyst recommendations for the stocks traded in the CSI-300 index.
The CSI 300 is made up of the 300 largest and most traded A shares in China. The majority of these are financials and industrials. A-shares can only be bought and sold on the Chinese mainland stock exchanges and exclusively in the Chinese currency Renminbi.
But investors should not attach too much weight to the large proportion of buy recommendations alone. The indices of the Chinese mainland stocks experienced a negative development, especially between 2011 and 2015, due to declining economic growth.
Strong economic growth expected
However, the fact is that China was the only major economic nation to record growth in the pandemic year 2020, 2.3 percent. For the current year, the International Monetary Fund is expecting an increase of 7.9 percent – despite the corona pandemic that continues to spread around the world. Analysts’ optimistic view of Chinese equities is therefore justified this time around.
Resistance to crises in 2020 and the anticipated strong economic growth are also reflected in the price development of the CSI 300. The index has already gained 5 percent in value in the new year after a price increase of 27 percent in 2020.
For the new year it is also positive that the economic recovery will continue to be supported by the Chinese central bank. Investors looking for returns will therefore be forced to invest in China in 2021. cash.ch presents three promising stocks and several ETFs (Exchange Traded Funds) as alternatives.
Lenovo – A cyclical high-tech stock
The shares of the Chinese computer and smartphone manufacturer Lenovo switched to turbo mode at the beginning of November – the price has increased by 88 percent since then. This after the stock had not returned to its pre-crisis level in the months before and had performed worse than the market as a whole.
Performance of Lenovo shares on the Frankfurt Stock Exchange since January 2020 (source: cash.ch).
The sharp rise in the share price is not without a foundation: The company, with its strong market presence – as the world’s largest computer manufacturer – is in a cyclical and consumer-oriented industry. In recent years, the company has been swinging back and forth between profit and loss in line with economic developments.
The numbers for the third quarter were definitely promising and correspond to the economic trend: Sales rose 7 percent to $ 14.5 billion, profits rose 53 percent to $ 310 million. Analysts are confident that the positive development in business will continue thanks to the economic upturn. The shares are also a buy because of the rather low price-earnings ratio (P / E) of 16.9.
China Southern Airlines – Die Turnaround-Chance
No, despite the name, China Southern Airlines is not a regional airline. The company swallowed China Northern Airlines and China Xinjiang Airlines in 2003 and is currently a giant beyond China. With around 100,000 employees, the company is the third largest airline in the world and the largest in Asia.
Sure, the company was also hit hard by the global lockdown. China Southern Airlines is currently suffering from the restrictions caused by the virus pandemic and the associated decline in tourism.
The analysts are nevertheless optimistic that the airline will find its way back into profitability in 2021, which is not unrealistic thanks to the pandemic fight with the vaccines. This positive sentiment is reflected in the analyst ratings listed by Bloomberg: 17 “buys” stand against three “holds” and one “sell”. The average earnings potential is plus 10 percent.
Xinyi Solar – A solar supplier giant without margin pressure
The shares of Asia’s largest manufacturer of solar glass and panels received a real boost in the last three months of 2020 – plus 52 percent. Investors are hoping that the company will receive preferential treatment in the new state five-year plan to be passed by the Chinese People’s Congress in March.
President Xi Jinping announced at the UN General Assembly at the end of September that his country wants to tighten its climate targets. “Our goal is to have carbon emissions peak before 2030 and carbon neutrality before 2060,” said Xi.
Performance of the Xinyi Solar shares as of June 2020 on the Frankfurt Stock Exchange (source: cash.ch).
With Flat Glass, also from China, Xinyi Solar also has a world duopoly in the solar glass sector. Together they are therefore indispensable for almost all well-known solar equipment suppliers in the world. This dominant market position enables Xinyi Solar to keep the margins at a high level.
For these reasons, the analysts polled by Bloomberg are very “bullish” for Xinyi Solar stocks. And although stocks have risen sharply over the past three months, the average target price is only 2 percent below the current price. Investors who want to benefit from the widely announced Chinese energy transition have come to the right place at Xinyi Solar.
Selected China ETF
For investors interested in broad coverage of Chinese A-shares, the “KraneShares Bosera MSCI China A Share ETF (Exchange Traded Funds)” is a good choice. In January the fund had already gained 4.4 percent in value. The “iShares MSCI China ETF” is recommended for the so-called H shares. This offers access to the largest and best-selling Chinese companies listed on the Hong Kong stock exchange. The fund has been up 9.9 percent since the beginning of the year.
The “iShares MSCI China Small-Cap ETF” is more suitable for more courageous investors. However, greater returns await the greater risk. The fund, which focuses on small-cap Chinese companies, has already gained 11.1 percent in value in 2021. Alternatively, there are also thematic ETFs: the “Invesco China Technology ETF” for investors interested in the Chinese technology sector, the “Global X China Clean Energy ETF” for investments in alternative energies or the “Global X China Biotech ETF” for Chinese biotech companies .
–
