The global economy is on the cusp of a slowdown, amid the U.S.-China trade war and turmoil in Hong Kong.
Investors are, thus, hoping that central banks around the globe would ease their monetary policy in order to boost the economy. And that’s exactly what China did recently. On Aug 17, the People’s Bank of China announced a key interest rate reform directed to lower real interest rates for companies.
The step was to prevent the Chinese economy from slowing down. The second-quarter GDP growth in China had slowed to 6.2% on a year-over-year basis compared with year-over-year growth of 6.4% in the first quarter. This is the lowest growth rate in the past three decades.
Central Bank’s Stimulus & Its Impact
China and Hong Kong stocks rallied on Aug 19 after the announcement from the People's Bank of China (PBOC) that new Loan Prime Rate (LPR) is set at 4.25% for a year, lower by 6 basis points from 4.31% that previously existed. Lowering the LPR will allow companies to borrow more and pay less interest.
LPR is the interest rate that commercial banks charge clients and reflects market demand for funds compared to the benchmark set by PBOC. According to PBOC’s website statement, the reformation in the LPR mechanism will enable them “to use market-based reform methods” to reduce rates in the future.
On the same day, Hong Kong's Hang Seng Index (HSI) closed at 2.2% higher, the biggest daily percentage gain recorded in two months. China's Shanghai Composite Index (SHCOMP) ended 2.1% higher, the best daily performance since Jul 1.
The announcement boosted several sectors like real estate and tech socks. China's largest developers by sales, Country Garden shared increased by 5.8% and Shenzhen-based Chinese tech giant Tencent climbed 3.2% in HSI. Also, a top performer of HSI, Shenzhen International Holding, and a property-focused conglomerate closed higher by 7.7%.
Stimulus Eases Trade Tension
The prevailing United States-China trade tussles and the signs of global economy slowing down have put investors in deep waters. Any announcement of a new benchmark in interest rate cheers up investors. In fact, Chinese policymakers are willing to do more to support their economies in the grip of international trade frictions.
China has a huge demand for iron ore and coking coal to make steel for its major trade. Beijing’s stimulus efforts are not only aimed at keeping China’s economic growth rate above 6% annually but also offset the impact of weaker manufacturing exports. China is trying to stimulate the economy through infrastructure and construction spending, as the other commodity producers suffer from the escalating tariff war.
5 Chinese Stocks to Win Big
With PBOC decreasing interest rates to 4.25% for next year, companies in the all sectors doing business in and across the globe have found relief. But, most importantly, the Chinese stocks are poised to make the most of PBOC’s stimulus measures. We have thus shortlisted five Chinese stocks from different sectors that flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
China Life Insurance Company Limited LFC is a publicly traded life insurance company operating in China. It offers products and services like individual life insurance, group life insurance, accident and health insurance. The company’s expected earnings growth rate for the current year is 296.4%. The Zacks Consensus Estimate for its current-year earnings has improved 32.1% over the past 60 days.
JD.com, Inc. JD is a publicly traded online direct sales company in China. It offers a wide range of products through its website and mobile application. The products include electronics, furniture, food, childcare and much more. JD.com’s expected earnings growth rate for the current year is 155.9%. The Zacks Consensus Estimate for current-year earnings has improved 27.9% over the past 60 days.
Qudian Inc. QD is a publicly traded online consumer finance platforms primarily operating in the Peoples Republic of China. It offers cash credit products, which include funds in digital form and merchandise credit products. Qudian’s expected earnings growth rate for the current year is 87.8%. The Zacks Consensus Estimate for its current-year earnings has improved 23.4% over the past 60 days.
China Southern Airlines Co., Ltd. ZNH is a publicly traded air transportation enterprise in China. It operates more than 840 passenger and cargo transport aircraft, including Boeing B787, B777, B747 and B737, and Airbus A380, A330, A321, A320 and A319. The company’s expected earnings growth rate for the current year is 145.5%. The Zacks Consensus Estimate for its current-year earnings has improved 17.5% over the past 60 days.
Sinopec Shanghai Petrochemical Company Limited SHI is a publicly traded petrochemical in China. Its facilities process crude oil into synthetic fibers, resins and plastics, intermediate petrochemicals and petroleum products. Shanghai Petrochemical’s expected earnings growth rate for the current year is 8.8%. The Zacks Consensus Estimate for its current-year earnings has improved 9.7% over the past 60 days.
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