China Manufacturing & Services PMI Improve: 5 Great Choices

Even as China and the United States gear up for a trade war, China’s economy has been gaining traction. While factory activity touched its highest level since last December, services activity rebounded in March after hitting a four-month low in the prior month. Increase in steel production and removal of winter pollution restrictions contributed to these gains.

Additionally, industrial output registered the fastest growth pace since last June, which, coupled with solid retail sales also bear evidence of a strengthening economy. Given such upbeat trends, stocks having significant exposure to the Chinese economy could be a lucrative investment choice.

Manufacturing Hits Highest Level Since December 2017

According to China’s National Bureau of Statistics (NBS), manufacturing Purchasing Managers' Index (PMI) increased from the February reading of 50.3 to 51.5 in March, its best settlement since December 2017. Significant improvement in new orders and an increase in production led manufacturing PMI to enter the expansion zone last month. New orders increased from 51 to 53.3 in March, while output climbed from 50.7 to 53.1.

Moreover, in the first two months of this year, industrial output gained 7.2% year over year, higher than December’s increase of only 6.2%. After languishing below 6.6% in the last six months of 2017, industrial production started the year on an upbeat note. Steady growth in China’s steel industry contributed to this increase in industry output and was eventually reflected in last month’s manufacturing activity data. Also, urban fixed-asset investment grew 7.9% in the first two months of this year, better than December’s rise of 7.2%.

Services Continue to Expand in August

Additionally, China’s services PMI rose from 54.4 in February to 54.6 in March. The country’s non-manufacturing activity not only expanded last month, but also rebounded from its four-month lows. New exports orders in the services sector jumped from 45.9 to 50.4 in March. Additionally, new orders continued to expand at 50.1 in March.

Following the economic slowdown in the beginning of this year, China is now increasingly focused on the performance of the services sector. Hence, recovery in services is clearly good news for policymakers who are looking to rebalance the country’s economic model. To date, the sector contributes more than 50% of China’s GDP.

Retail Sales and FDI Register Progress

In the January-February period, retail sales increased 9.7% year over year, better than a 9.4% rise in December. Significant gains in auto sales, building materials, jewelry, personal care products and home appliances led to a strong rise in retail sales. Foreign direct investment (FDI) advanced from January by 0.5% year over year to 139.4 billion yuan or $22.06 billion in February.

The aforementioned positive data clearly indicated stabilization in the China’s economy. Following the upbeat manufacturing and services PMI data, the China Logistics Information Centre projected around 6.8% economic growth for the country in the first quarter. Moreover, the CSI 300 Index has gained 12.2% in a year.

5 Best China Stocks

Encouraging manufacturing and services activity, strong increase in industrial production, and buoyant retail sales and FDI data have put the spotlight on China’s economy. Given the upbeat trend, investing in stocks from China could be a wise investment decision.

In this context, we have selected five stocks that are expected to gain following these developments. These five stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Autohome Inc. (NYSE:ATHM) is an operator of an online destination for automobile consumers in the People's Republic of China.

This Beijing-based company has a Zacks Rank #1. The expected earnings growth rate for the current year is 42.97%. The Zacks Consensus Estimate for the current year has improved 18.2% over the last 30 days. Autohome has gained 37.8% in the last six months.

Kingdee International Software Group Company Limited (OTC:KGDEY) is an investment holding company.

This Shenzhen-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 47.33%. The Zacks Consensus Estimate for the current year has improved 14.2% over the last 30 days. Kingdee International Software Group has gained more than 100% in the last six months.

China Petroleum & Chemical Corporation (NYSE:SNP) is an energy and chemical company that operates in the People's Republic of China.

This Beijing-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 30.25%. The Zacks Consensus Estimate for the current year has improved 1.7% over the last 30 days. China Petroleum & Chemical has gained 20.2% in the last six months.

Yanzhou Coal Mining Company Limited (OTC:YZCAY) is involved in mining, processing, sale and exploration of coal in China.

This Zoucheng-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is 17.19%. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 30 days. Yanzhou Coal Mining has gained 21% in the last six months.

PetroChina Company Limited (NYSE:PTR) is involved in a range of petroleum-related products, services and activities.

This Beijing-based company has a Zacks Rank #2. The expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 0.9% over the last 30 days. PetroChina has gained 6.7% in the last six months.

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