By Stockpickr Staff
Updated at 3:51 p.m. EDT on April 22, 2009
China’s largest stock exchange, the Hang Seng Index, has risen about 30% from its March 9 bottom of 11,344.58. This compares with a 19% rise for the Dow Jones Industrial Average and a 25% rise for the S&P 500.
Simply put, the Chinese government, led by Premier Wen Jiabao, has authorized market-friendly stimulus and financial packages with the goal of restoring economic and, more important, political confidence. So far it’s worked.
According to Bloomberg, Jiabao recently said that the $600 billion Chinese stimulus package, focused solely on infrastructure and internal projects, has shown “http://bloomberg.com/apps/news?pid=20601087&sid=apE_HearEyeY " target="_blank"> better-than-expected” results in stimulating both economic and financial growth. Jiabao also said in a speech given Saturday night that “China’s rapid reaction in rolling out the stimulus package has resolved some prominent problems in the economy, strengthened market confidence and stabilized people’s expectation.”
With an estimated $1.2 trillion dollars in U.S treasury bonds and a communistic government, China can basically afford to do what it wants. Recently, the country started stockpiling cheap commodities such as oil, filing up several 100 million- to 200 million-barrel reserve tankers. Each tanker holds enough oil to power the country for 32 days. China has not disclosed any substantial information on these massive holding centers.
On Feb. 17, China agreed to provide Russia with $25 billion in loans in return for 300,000 barrels a day of oil for 20 years as companies such as Lukoil (LUKOY.PK) and Mechel Open Joint (MTL) look to reduce their debt as well.
Venezuela’s largest oil company has agreed to provide 2000,000 barrels per day to pay off a $4 billion loan from the China Development Bank, and just recently, China lent Petroleo Brasileiro (PBR), one of the largest oil companies in the world, $10 billion in exchange for first right of refusal on certain future output.
Aluminum Corp. of China (ACH), also referred to as Chinalco, is in the process of loaning $19.5 billion to Rio Tinto, one of the world’s largest mineral producers, in partial exchange for stakes in Rio Tinto’s key iron ore and copper mines in South America and Australia. As mineral prices fall, Rio Tinto is strapped for cash and is currently looking to reduce its almost $40 billion in debt. The stock has had a 52-week trading range of $558.65 to $59.20 and was trading up more than $10 at about $147 on Wednesday afternoon. If it ever gets back to the $60 to $70 range, on a net-asset replacement basis it’s a screaming buy.
With daily traders right trying to game Bidu.com (BIDU), focus on the smaller, cash-rich Chinese companies that have competitive and operational advantages over their competitors. The world is turning to China to solve its financial crisis, and these Chinese stocks are going higher.
Ctrip.com International (CTRP): Ctrip.com is one of China’s leading producers of travel-retailed services, including hotel and airfare accommodations. Revenues have grown 50% year over year, and sales have increased 300% year over year. As the demographic trend from lower class to middle class increases, the Chinese middle class will be the avenue for domestic flights.
Ctrip.com is growing revenues at 40% year over year in tier 1 cities with a population of more than 10 million people and 50% year over year in tier 2 cities. Moreover, the government subsidizes the cost of jet fuel, which helps Ctrip.com better predict cash flows and increases operating margins.
As the Yuan & Renminbi are revalued at higher levels, domestic companies such as Ctrip.com will also be aided by a positive currency conversion. Shares of Ctrip.com have had a 52-week trading range of $70.89 to $16.41 and were recently trading up 49 cents, or 1.6%, at $31.18.
China Medical Technologies (CMED): China Medical Technologies is one of China’s leading medical instrument and supply companies. On top of China's recent 4 trillion yuan ($586 billion) stimulus package, the government has a five-year plan to invest $3 billion in health care, $1 billion of which will be for medical equipments. It is widely expected that smaller hospitals will receive a sizeable chunk, as Beijing hopes to improve healthcare in more rural areas.
Shares of China Medical Technologies have had a 52-week trading range of $55.24 to $11.41 and were up $1.47, or 7.3%, at $21.50 on Wednesday afternoon.
Sohu.com (SOHU): Sohu.com, based in Beijing, provides online and wireless products in the People's Republic of China. Sohu reported blockbuster results in 2008, with revenue and earnings growing substantially and exceeding market expectations and guidance in almost every product area. The stock itself is dirt cheap, selling at just 9.9 times next year’s earnings, with a historic annual growth rate of 42%.
Sohu.com has $314 million, or $8.25 per share, in cash, which is just more than a sixth of its entire market cap. Management and corporate insiders own 25% of the company, putting their financial interests directly in line with that of the common equity shareholders. Sohu.com also has about a 19% short position.
Trading in a 52-week range of $34.10 to $91.50, Shou was adding 89 cents, or 1.9%, at $47.53 on Wednesday afternoon.
For more ideas, check out the New Chinese Rocket Stocks portfolio at Stockpickr.
At the time of publication, the author had no positions in stocks mentioned.
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