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Forget Alibaba, Bet on These 5 Winning China Stocks of 2015

It's been a roller coaster year for China stocks, marked by exponential gains followed by a sharp nosedive. While the first half of the year was a great time for the markets, stocks began slipping during the second half. By August, markets had reached their nadir, staging a steady recovery over the last two months.

Meanwhile, shares of Alibaba BABA suffered an altogether different fate. Following a spectacular U.S. IPO in September 2014, the stock tanked within the first two months of its debut. It continued to fall over most of the year and has staged a modest recovery only recently.

Even so, it is still in the red for the year while other stocks from China have registered great performances. This is why it may be a good idea to invest in better bets even as the government implements new stimulus measures to boost the economy.

Alibaba's Fortunes

Within six months of its debut, the Chinese search engine giant had to bear the brunt of a number of allegations and controversies. By March this year, it had been charged for allowing bribery, fraud and illicit behavior as well as fake goods to proliferate on its sites.

During that month, The Wall Street Journal reported that the Chinese e-commerce giant is being beleaguered by "brushers." This term refers to users paid by vendors to buy their goods online, at a cost, and then write positive reviews about the goods.

In May, luxury brands maker Kering accused the company of scheming in the manufacture and sale of imitations of its products all over the world. By its first anniversary, the stock was trading for less than the $68 IPO price it was issued at. Shares had surged for two months after its IPO to a peak value of $120.

Modest Turnaround

Given its tremendously successful debut, Alibaba has staged a modest turnaround over the last quarter of 2015, gaining 34% since the start of October. The company reported second-quarter fiscal 2016 earnings of 38 cents per share, which exceeded the Zacks Consensus Estimate of 32 cents.

This recovery came on the back of economic and market related stimulus measures which enabled the broader markets to rebound. Due to these efforts by the government, stocks began to moved upward steadily in October. Despite gains made since then, the stock is still down 18.4% year-to date.

Market Boom and Bust

During a greater part of the first half of the year, China's stocks were surging. The benchmark Shanghai Composite Index had gained 28% over the first six months. The gauge touched its highest level for the year on June 12, even as GDP growth fell to its lowest pace in nearly 25 years.

The rally was primarily powered by high levels of margin lending. Meanwhile, the government reduced the key rate several times. The property market underwent a slump which meant investors were forced to seek other investment alternatives. Consequently, retail investors fueled stock price increases.

Ultimately, markets crashed over a two and a half month period, erasing nearly $5 trillion in value terms. A bubble had built up steadily and valuations had hit levels which were difficult to justify. The benchmark's average price-to earnings ratio had reached a peak value of 25, taking into account earnings for 2014.

Steady Recovery on Government Measures

On Aug 24 and 25 the benchmark index underwent its sharpest decline in more than seven years. The Shanghai Composite Index tanked 8.5% on Aug 24, closing around the 3,200 mark on Monday. China's main stock index moved into the red for the year, while it plunged almost 38% from its peak in mid-June.

Fearful of widespread financial instability, the government stepped in to take a number of measures to support markets. The market regulator has stepped in to reduce trading irregularities. Other support measures included suspension of trading for 1,400 and more companies, preventing important shareholders from offloading stakes, delaying IPOs and providing a government agency with access to funds in excess of $480 billion to purchase equities.

The underlying reason for the rout was a flagging economy. Besides providing monetary stimulus measures and devaluing the yuan, reforms of government owned enterprises have been accelerated. Authorities have also eased regulations on the purchase of real estate. The government has announced that it will increase the pace of important construction projects and rationalize debt management at the local government level and undertake tax reforms.

Ending 2015 in the Black

A modest recovery started in October and by the following month, the benchmark index had emerged from the red, gaining 20% from the low it touched in August. Since then, several measures used to prop up stocks have been withdrawn. There are indications that state funds have stopped share purchases and new share sales have resumed.

Meanwhile, both of the mainland exchanges will implement a circuit-breaker mechanism starting next year. This would involve suspension of trading for half an hour if the CSI 300 increases or a decline by 5% from the last day's close before 2:30 pm. In case such a movement occurs after 2:30 pm, trading will remain suspended for the day. Additionally, a 7% gain or loss would result in trading being closed for the day immediately.

Ultimately, the Shanghai Composite has gained 12.4% year-to-date even as the S&P 500 languishes in the red. China's top leadership has promised to take fresh measures this Monday in order to boost economic growth. Meanwhile, economic indicators have improved signaling that the economy is stabilizing.

Our Choices

China's top leadership has taken several steps to support markets and the country's economy. Now with markets returning to their winning ways, several of these measures have been removed. Meanwhile, the government is determined to transform the economy into one driven by consumer expenditure and new economy stocks.

All of these signs bode well for stocks from China next year. Below we present five of the top performing stocks of the year which will gain from these trends. Each of these stocks also has a good Zacks rank, strong year-to-date returns and other relevant metrics.

China Biologic Products, Inc.CBPO through its indirect majority-owned subsidiary, is principally engaged in the research, development, production, manufacturing and sale of plasma-based biopharmaceutical products to hospitals and other health care facilities in China.

China Biologic Products has a Zacks Rank #2 (Buy) and expected earnings growth of 23.9% for the current year. It has a PEG ratio of 1.66, better than the industry average of 1.80. The stock has gained 99.5% year-to-date.

Weibo Corp.WB operates as a social media platform for people to create, distribute and discover Chinese-language content.

Weibo has a Zacks Rank #2 and expected earnings growth of more than 100% for the current year. The stock has gained 47% year-to-date.

JinkoSolar Holding Co., Ltd.JKS is a solar product manufacturer with operations based in Shangrao, China.

JinkoSolar has a Zacks Rank #1 (Strong Buy) and expected earnings growth of 35.3% for the current year. Its earnings estimate for the current year has increased 57.1% over the last 30 days. It has a PEG ratio of 0.39, better than the industry average of 0.84. The stock has gained 43.8% year-to-date.

Momo Inc.MOMO provides a mobile-based social networking platform primarily within China.

Momo has a Zacks Rank #2 and expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has increased 57.1% over the last 30 days. The stock has gained 37.2% year-to-date.

ReneSola Ltd.SOL manufactures and sells solar wafers and related products.

ReneSola has a Zacks Rank #1 and projected growth for the current year is 60%. Its earnings estimate for the current year has increased 71.4% over the last 60 days. The stock has gained 21.3% year-to-date.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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