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3 Stocks to Buy Ahead Of More Chinese Stimulus
Aspire, Hot Picks | 13 November 2015
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By: Lim Si Jie
Articles (169) Profile

The People’s Bank of China (PBOC) has a strong message for investors worldwide: China’s stock market correction is “almost over”. This was after the central bank took fresh steps to inject liquidity into the struggling second largest economy in the world.

At an annual meeting of the International Monetary Fund (IMF) and World Bank in Peru, deputy governor of the People’s Bank of China (PBOC) added with confidence that the corrections in the mainland’s equity market have had limited impact on the world’s second-biggest economy as PBOC has taken a series of measures to avoid systemic risks.

Chinese Version of QE

PBOC announced that it would expand a pilot scheme that allows banks to borrow money from the central bank using high quality credit assets as collateral. The pilot program would boost banks’ lending abilities, expanding the supply of base money at a time when foreign reserves is shrinking. “The market has widely interpreted the move as a Chinese version of quantitative easing,” according to Jacky Zhang, an analyst at BOC International.

PBOC Lowers Interest Rates

PBOC followed its “QE” with an announcement of a 25 bps cut to official lending rates and deposit rates. The one-year benchmark bank lending and deposit rates currently stands at 4.35 per cent and 1.5 per cent, respectively. The rate cut was largely unexpected by the market, which was the sixth rate cut since November last year. China’s interest-rate cut will help loosen monetary conditions, improving the prospects for financial assets in the country.

Further Stimulus Expected

And if investors are wondering whether this would be the last move by the Chinese central bank, fret not, this easing cycle is not over. Real interest rates are still higher than a year ago, leaving companies struggling to service their debt. Most economists expect one more interest rate cut this year, probably in December, followed by another in early 2016.

Risks In Struggling Chinese Economy

However, the strong signals from PBOC should not obscure the considerable challenges that China face. Chinese exports fell 3.7 percent in September from a year earlier. In August, China reported a 6.1 percent decline on year.

Sanjiv Shah, chief investment Officer of Sun Global Investments, said: “The Chinese decision indicates that the authorities are clearly worried about the slowdown in the pace of economic growth and have decided to engage in more pre-emptive action.”

Officials are obviously willing to pull the levers of monetary policy but it does not guarantee any effectiveness. Given that China’s capital account is far from open, the effect of a Chinese rate cut on the global economy is unclear.

Investors Takeaway: Three Chinese Stocks to Invest In

The current three largest constituents of the FTSE ST China Index are Hongkong Land, Global Logistics Properties and Wilmar International. Incidentally, these stocks are given strong buy ratings from research houses.

1.       Hongkong Land: 

Source: Bloomberg

73 percent of revenue from China

Street View:  13 BUYS, 0 SELL, 4 HOLD

Consensus TP: $9.15

2.       GLP: 

Source: Bloomberg

63 percent of revenue from China

Street View:  17 BUYS, 1 SELL, 1 HOLD

Consensus TP: $3.06

3.       Wilmar

Source: Bloomberg

50 percent of revenue from China

Street View:  14 BUYS, 2 SELLS, 5 HOLD

Consensus TP: $3.31

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

Hongkong Land Hldgs  5.730 +0.03 +0.53%   
Business: Co is principally engaged in the business of investment, management and development of properties in key Asian cities of Singapore and Hong Kong. [FY18 Turnover] Sales of properties (57.5%), rental income (36.9%), service income (5.6%).

Insight: Feb-19, FY18 revenue rose 64.9% with Co's investme... Read More
Wilmar Int'l  3.790 -0.05 -1.30%   
Business: Co's integrated agribusiness model encompasses the entire value chain of the agricultural commodity processing biz, from origination and processing to branding, merchandising and distribution of a wide range of agricultural pdts.

Insight: May-19, 1Q19 revenue fell 6.2% to US$10.4b driven ... Read More

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