Three stocks for a growing Chinese economy
Many are skeptical of China’s growth, but it’s the real thing, says this U.S. expert. And he has three Chinese stocks to back up his story.
Many years ago, befuddled Westerners perpetually referred to Chinese society as “inscrutable.”
Apparently, to many economic observers it still is.
They look at China’s growth statistics and wag skeptical fingers. Will it last? Can they meet those figures next year?
Yes they can, says one U.S. expert who has been scrutinizing China for a good many years. It is the “21st century’s definitive growth story,” says Mr. Yiannis G. Mostrous.
Writing in Personal Finance, Mr. Mostrous makes the case for China’s role as “the main driver of the global economy.”
This expert, who also edits a publication called The Silk Road Investor, doesn’t see any point in waiting ‘til next year. You might as well get in on the Chinese growth story now.
And he recommends three stocks that are growing in unison with China’s domestic economy — one a telecom, one a medical device maker and one in the power generation business.
We begin with these three companies that serve that very populous home market. Note that all three trade in New York.
On the cellphone
China Mobile (NYSE-CHL) seems like a no-brainer. It stands to reason that an increasingly affluent society would take to the cellphone. In fact, the so-called “penetration rate” for this market is just 50 per cent, so there are plenty of cells to sell.
Telecom competition has been heating up in China, not surprisingly, but China Mobile is still well out in front. It has a subscriber base of over 300 million and generates more than 80 per cent of the country’s total revenue in the mobile business.
According to Mr. Mostrous, the company also boasts “superior network quality, strong brand-name recognition and a skilled management team — all of which set it apart from its competitors.”
The stock offers both growth and income potential (it pays a dividend of $1.74 and yields 3.7 per cent). That makes it a compelling long-term investment, says the analyst, who has it as a buy up to US$65. It opened today at $47.98.
Adding to its lineup
Mindray Medical International Limited (NYSE-MR) does 45 per cent of its business in China. It has three divisions: patient monitoring and life support, in-vitro diagnostic products, and medical imaging systems.
Mindray sells its products largely through distributors, but it also deals with hospitals, clinics, government agencies and other design and equipment manufacturers.
The company keeps adding to its lineup of high quality products, says the author, bringing in new operating room innovations and improved ultrasound products. Buy it under US$35, he says. It’s at $32.49.
Ground to make up
One of three big power generation suppliers in China, Dongfang Electric (OTC-DNGFF) makes equipment for thermal, hydro and nuclear power stations.
It has a production capacity of 30 gigawatts a year and controls 30 per cent of the domestic market for large-scale steam and hydro equipment. Its future growth will come from cleaner energy, nuclear and wind power.
If state estimations are correct, China will need 60 to 70 more gigawatts of nuclear capacity in the next decade. It’s at about 9 now, so there’s a lot of ground to make up. Already, nuclear power equipment is the second-largest line of business at Dongfang, so it’s ready to roll.
Buy it up to 45 Hong Kong dollars, says the author. It’s at HK$38.05, or $5.05 in U.S. dollars on the Over-the-Counter market in New York.
Middle Kingdom growth
China will keep on growing, Mr. Mostrous insists. The naysayers consistently get it wrong.
“In 2008, amid the worst of the financial crisis,” he says, “talking heads wondered whether the government’s stated aim of 8 per cent growth could be achieved in 2009.” The answer is yes.
So now the “permaskeptics” are worrying about 2010. A reasonable assumption for next year would be 8 per cent growth again.
“If, however, the U.S. and Europe gain a little traction and Chinese exports pick up even moderately, the Middle Kingdom’s growth could reach 9 per cent in 2010,” says the author.
China is now showing real signs of “decoupling” from the fate of the developed world, he adds. It is not immune from the global economic cycle, nor can it ever be completely resistant to a slowdown in the West.
But its performance amid the current economic upheavals, says Mr. Mostrous, “is an early indication that China will lead the rest of Asia as the continent becomes the focal point of a new financial order.”
Its fundamentals are strong. Both households and companies in Asia have strong balance sheets “unencumbered by crippling debts.” In short, people still save more than they spend.
“Low household debt, strong income growth and tame inflation have allowed many Chinese to boost consumption,” adds the author. Urban household spending is growing at a rate of 7 or 8 per cent, right in line with the growth of the economy.
This analyst’s conclusion: “China remains one of the best places to invest, in both bad and good economic times.”
Nothing inscrutable about that.
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