IMF Raises 2019 Growth Forecast For China: 4 Picks

In its latest report on the growth outlook for the major economies of the world, the International Monetary Fund (IMF) raised its yearly forecast for China. This implies that China’s efforts to stimulate its economy is slowly beginning to pay off. Meanwhile, the global lending agency slashed its growth forecast for some of the major economies of the world.

Global banks such as HSBC (NYSE:HSBC) as well as their domestic counterparts such as Bank of America (NYSE:BAC) have also recently vested their confidence in the country’s ability and resilience to counter a global economic slowdown. Under such encouraging circumstances, investing in Chinese stocks appears prudent.

IMF Vests Faith in Chinese Economy

Per the latest World Economic Outlook report released on Apr 9, the IMF increased its growth forecast for China’s 2019 economic growth. The IMF projects China’s economy to grow by 6.3%in 2019, higher than its previous forecast of 6.2%.

The global agency believes that improving geopolitical situation on the trade war front and judicious lawmaking by Chinese officials to mitigate the slowdown would auger well for the country’s economy this year.

Notably, the upgrade in China’s growth forecast was made despite the downbeat projection for the global economy. In the same report, the lending agency lowered its global growth forecast for 2019 to 3.3%, 0.2% below its previous estimate in January.

HSBC & Bank of America Remain Optimistic on China

In a report published on Apr 8, HSBC stated that it expects China’s economy to grow by as much as 6.6% this year. The bank believes that economic stimulus to China’s economy would come from its private sector, which would lead the Asian giant’s economic growth in 2019. The report also stated that “growth has bottomed and will gradually pick up in the coming quarters as the stimulus measures filter through.”

Also, improving economic conditions, particularly the country’s manufacturing activity should boost its economy. China's Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) increased from 49.9 in February to 50.8 in March. The expansion was the fastest witnessed in eight months.

Furthermore,on Apr 3, Caixin's China services purchasing managers index, a measure of the Asian giant's private sector performance, increased to 54.4 in March, a 14-month high. The rise was supported by a gain in new export orders.

Meanwhile, Bank of America Merrill Lynch’s head of global economics research, Ethan Harris praised China’s role in global manufacturing. In a note on Apr 5, he stated that China’s “central role” in impacting the global manufacturing as well as demand dynamics indicates that an improvement in March PMI buoys optimism for global factories as well.

Such positivity around China’s economy is not a mere reaction to a few better-than-expected economic reports. It can also be seen in the country’s stock markets. Chinese stocks have gained 31% since January so far.

4 Top Picks

An uptick in China’s manufacturing activity, its private sector’s recovery and the highly anticipated U.S.-China trade deal have primarily been the reasons behind optimism around China’s economic growth.

Further, as the IMF remains positive about growth in the Chinese economy in 2019, there are multiple reasons for investors to consider stocks from the country. In this context, we have selected four stocks that are expected to gain from these factors. 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.

The company is based out of Beijing and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 15.20%. The Zacks Consensus Estimate for the current year has improved 5.4% over the past 60 days.

OneSmart International Education Group Limited (NYSE:ONE) is a provider of tutoring services for kindergarten and primary, middle as well as high schools in China.

The company is based out of Shanghai and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 81.82%. The Zacks Consensus Estimate for the current year has improved 5.3% over the past 60 days.

JD.com, Inc. (NASDAQ:JD) operates as an online direct sales company in China. The company also provides retail infrastructure services.

The company is based out of Beijing and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 59.56%. The Zacks Consensus Estimate for the current year has improved 10.2% over the past 60 days.

LexinFintech Holdings Ltd. (NASDAQ:LX) is the owner and operator of an online consumer finance platform for young adults in China.

The company is based out of Shenzhen and carries a Zacks Rank #1. The Zacks Consensus Estimate for the current year has improved 16.3% over the past 60 days.

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