China may have celebrated its Ghost Month from Aug 7 - Sep 4,
a period when ghosts are believed to emerge from the lower realm,
but of late some evils seem to have spared the economy. The
Chinese economy enjoyed some positive and encouraging data across
As global markets are gradually stabilizing from the Federal
Reserve's zero-taper shocker, the Chinese economy seems to be
well poised to grow at a moderate pace as the government push
through the structural changes for a holistic long-term
Meanwhile, as global equity markets are continuing to move north
upon the zero-taper landscape, let's cherry pick some must-have
Chinese stocks with strong fundamentals. However, before we
zero-in on a handful of priceless stocks, let us recap the
various turns of events over the past month.
The Positive Feelers
Export and manufacturing sectors are the two key pillars in the
Chinese economy. August data revealed that exports in China rose
7.2% year over year and imports increased 7%; thus resulting in a
trade surplus of more than $28.5 billion. Factory output growth
hit a 17-month high of 10.4% in August compared with the year-ago
period - the biggest such increase since Mar 2012.
The Purchasing Managers' Index (PMI) reading climbed to 51 in
August from 50.3 in July. The PMI is one of the key metrics to
gauge economic health (a reading above 50 indicates an
Retail sales were up 13.4% in August - the fastest growth
reported in 2013, while fixed asset investment inched up to 20.3%
in the first eight months of the year. Consumer inflation was
down marginally from 2.7% in July to 2.6% in August, which is
well below the official government upper limit of 3.5%.
According to the China Association of Auto Manufacturers, auto
sales aggregated 1.35 million in August, up 11% year over year.
This is encouraging news for automobile majors like
General Motors Company
Ford Motor Co.
Honda Motor Co., Ltd.
) as China is reportedly the world's biggest auto market.
Rebalancing the Economy
A steady increase in imports signifies a shift in government
strategy to stop being over-dependent on exports and hint at a
structural rebalancing of the economy. In order to spur domestic
consumption due to a slowdown in external demand as the commodity
super-cycle moderates, the government has also taken some modest
steps. These include suspension of value-added tax and turnover
tax for small businesses, which have monthly sales of less than
20,000 Yuan ($3,257). This is likely to benefit over six million
small companies and boost employment, thereby boosting domestic
In addition, the government has introduced new rules to curb the
misuse of public funds and has quickened railway investments and
public housing construction policies to instill more confidence.
Central bank figures further proved the surging customer
confidence as new bank loans aggregate 711.3 billion Yuan ($116.2
billion) in August. Total social financing aggregate, which is a
broad measure of liquidity, also increased almost two-fold to
1.57 trillion Yuan in August from 808.8 billion Yuan the month
All these steps have paved the way for the economy to rise,
albeit at a moderate pace, and allayed fears that the second
largest economy is running out of steam. Although China's GDP has
been staying under 8% for five straight quarters -- and a 7.5%
growth projection for 2013 would mark the lowest rate of
expansion in more than two decades -- it justifies the structural
reforms of the government for long-term sustainable growth that
is not overtly dependent on external factors.
3 Top Chinese Stocks
Amid such encouraging data, Chinese stocks rose to a three-month
high. The stocks also benefited from the deferral of the tapering
program, as emerging economies have largely been the
beneficiaries of Fed's largesse over the years. Cash pumped into
the emerging markets through the stimulus program in the U.S.
were primarily utilized to plug funding deficits and used for
infrastructure projects to fuel further growth.
As the equity market continue to reap the benefits of the Fed
decision, there are certain Chinese stocks with attractive
valuation metrics backed by a solid Zacks Rank #1 (Strong Buy).
Let's take a closer look at these companies that appear to be
well positioned to perform relatively better in the short-term.
): Headquartered in Shanghai, ATA provides computer-based testing
services that are used for professional licensure and
certification tests. The company also provides logistical
services such as test registration, scheduling and fee
collection. The stock is trading at a forward P/E of 17.92x and
has a long-term earnings expectation of 15.00%.
SouFun Holdings Ltd.
): The company trades at a forward P/E of 18.22x and has a
long-term earnings expectation of 39.81%. SouFun operates a real
estate Internet portal, and a home furnishing and improvement
website in the People's Republic of China.
Semiconductor Manufacturing International Corp.
): Headquartered in Shanghai, the company engages in
computer-aided designing, manufacturing, testing, packaging and
trading integrated circuits (ICs) and other semiconductor
services. It is also involved in the designing and manufacturing
of semiconductor masks. The stock is trading at a forward P/E of
12.89x and has a long-term earnings expectation of 15.00%.
Such strong fundamentals signify that this is perhaps the most
opportune time to own these high-potential stocks that pledge a
ATA INC-ADR (ATAI): Free Stock Analysis
FORD MOTOR CO (F): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis
HONDA MOTOR (HMC): Free Stock Analysis Report
SOUFUN HLDG-ADR (SFUN): Free Stock Analysis
SEMICON MFG-ADR (SMI): Free Stock Analysis
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