Investment Opportunities Made In China

11/2/2009


It’s hard not to be intrigued by the investment potential of China, which is soon expected to overtake Japan as the world’s second-largest economy and Germany as the leading exporter.

Aided by aggressive fiscal-stimulus efforts, rebounding consumer demand has sparked increased spending among China’s 1.3 trillion citizens, who represent nearly one-fifth of the world’s population. China says its gross domestic product grew 8.9% year-to-year in the September quarter, after a 7.9% increase in the June quarter. Full-year growth should approach 8%, down from 10.6% in 2008 but very healthy relative to the 2.5% decline expected for the U.S.

Increasingly, investors looking to capitalize on China’s growth can do so via U.S.-traded individual stocks. Of the 4,328 companies in our Quadrix universe, 84 hail from China. Only Canada, with 173 stocks, has a larger foreign presence in our research universe. The average Chinese stock earns a solid Overall Quadrix score of 73, with above-average scores in five of the six Quadrix categories. Currently, 48 of the 84 Chinese stocks score above 80 Overall — our typical cut-off for potential new recommendations.

So far in 2009, 42 of the 84 stocks have more than doubled, while only eight have declined. The average stock is up 152%. Still, most of the Chinese stocks in our research universe remain tiny. More than half have stock-market capitalizations of less than $250 million, and only eight are valued at more than $1 billion.

Chinese equities, like those from other emerging markets, tend to be much riskier than U.S. stocks. For most investors seeking broad exposure to China, a mutual fund is the best choice. Among no-load funds focused on China, Fidelity China Region ($28; FHKCX), Guinness Atkinson China & Hong Kong ($35; ICHKX), and Matthews China ($24; MCHFX) score well in our fund-ranking system.

Still, adventurous stock investors looking for ideas might want to consider the 11 names listed below. Representing several market sectors, the 11 score particularly well in Quadrix. None has an Overall score below 85 or a category score below 35.

One intriguing stock is Jinpan International ($31; JST). A leading maker of transformers used for power distribution and wind-energy products, Jinpan is benefiting from an infrastructure build-out and increased demand for electricity. Its products are used in large projects such as real-estate developments, factories, airports, and subways. Management is focused on bolstering profit margins while expanding product lines and the customer base. The stock, with an impressive Overall score of 99, has a market value of only $237 million. Jinpan is not rated.

HIGH-SCORING CHINESE STOCKS
———————————— Quadrix Scores * ————————————
Company (Price; Ticker)
Value
($Mil.)
Momen-
tum
Value
Quality
Fin'l
Str.
Earns.
Ests.

Perfor-
mance

Overall
Industry
American Dairy ($28; ADY)
497
97
53
95
50
36
80
89
Packaged Foods 
China Automotive Systems
($11; CAAS)
272
72
45
85
84
94
98
88
Auto Parts &
Equipment
China Fire & Security Group
($15; CFSG)
416
94
37
99
96
60
86
93
Industrial
Machinery
China Green Agriculture
($12; CGA)
237
96
51
99
99
45
95
97
Agricultural
Chemicals
China Sky One Medical
($13; CSKI)
189
93
94
100
100
54
20
99
Personal Products
Fuqi International ($22; FUQI)
538
99
47
99
84
28
94
94
Apparel &
Luxury Goods
Jinpan International ($31; JST)
237
95
90
94
96
43
75
99
Electrical
Equipment
Netease.com ($36; NTES)
4,622
76
37
99
100
61
42
84
Internet Software
PetroChina ($130; PTR)
224,380
58
78
73
94
96
78
91
Integrated
Oil & Gas
Wonder Auto Technology
($14; WATG)
353
92
62
95
69
90
97
98
Auto Parts &
Equipment
Zhongpin ($14; HOGS)
390
90
79
95
62
8
90
95
Packaged
Foods 
* Quadrix scores are percentile ranks, with 100 the best.

 


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