China’s economy has struggled in recent months amid a depressed level of consumer confidence and a devastating housing bust coupled with weak credit demand. Late in September—just after the U.S. Federal Reserve announced its first federal funds rate cut in several years—the People’s Bank of China unveiled a three-part monetary stimulus program to reduce reserve requirement ratios (the amount of cash banks are required to keep on hand), mortgage rates and down payment requirements, and more.
Some economists view monetary easing of this kind as limited in its potential impact during an economic downturn. Still, the immediate response of Chinese markets to the announcement has been a flurry of activity and a significant rally. The CSI 300, an index representing 300 of the largest publicly traded, Chinese-listed companies, is up by nearly 24% in the last month. Following the stimulus reveal, it had its single best day in nearly two decades.Get iShares MSCI China ETF alerts:Sign Up
A dip in Hong Kong stocks late in September prompted investors to speculate about how long the rally would continue. Indeed, consensus seems to be growing that a sharp reversal may be in store at some point if the stimulus measures are deemed to be ineffective overall. Still, there are several companies investors may wish to focus on during the boom.
NIO: Jolt for EV Maker
NIO Today$6.85 +0.08 (+1.18%) (As of 08:35 AM ET)52-Week Range$3.61▼$9.57Price Target$5.93
The Chinese government’s stimulus package has helped to propel EV maker NIO Inc. NYSE: NIO upward by more than 55% in the last month, though the stock remains down more than a quarter overall in the last year.
Besides the boost tied with the broader Chinese equities space, NIO has experienced added momentum thanks to its late-September announcement of a RMB3.3 billion investment in its NIO China subsidiary from external investors, alongside a commitment of an additional RMB10 billion that NIO itself will make.
Still, investors should exercise caution when it comes to NIO shares. Despite surging in recent weeks, the company faces stiff competition domestically and unfavorable tariffs in other parts of the world that are likely to limit its ability to undercut the Model Y from competitor Tesla Inc. NASDAQ: TSLA with its new affordable ONVO L60 offering.
TME: Earnings and Cash Flow Growth
Tencent Music Entertainment Group TodayTMETencent Music Entertainment Group$13.56 +0.08 (+0.59%) (As of 08:36 AM ET)52-Week Range$6.31▼$15.77Dividend Yield0.96%P/E Ratio29.48Price Target$12.67
Tencent Music Entertainment Group NYSE: TME, the online music and entertainment streaming platform provider, has massive earnings growth potential. Analysts project 27.4% earnings growth this year, far ahead of the wider industry. The company already posted a 33.1% year-over-year improvement in net profit in the latest quarter, driven by an increase in online music subscribers and improved retention rates.
Tencent has coupled this rapid bottom-line growth with steady improvement in cash flow as well, allowing the company to sustainably expand its operations. If China’s stimulus program is effective at boosting consumer spending, Tencent is likely to be a major recipient.
MCHI: Broad Market Coverage and Attractive Liquidity
iShares MSCI China ETF TodayMCHIiShares MSCI China ETF$58.40 +1.40 (+2.46%) (As of 08:35 AM ET)52-Week Range$35.58▼$58.40Dividend Yield2.02%Assets Under Management$6.16 billion
Investors looking to lean toward Chinese equities more broadly and without focusing on a single firm may look to the iShares MSCI China ETF NASDAQ: MCHI. This fund provides wide exposure to nearly 600 large-cap Chinese firms.
While it is not the cheapest broad-based China-focused ETF based on expense ratio, it provides superior liquidity and a strong asset base relative to some of its less-expensive competitors.
MCHI is up by more than a third in the last year, sharply outpacing the CSI 300 during that same period.
Impact of Additional Stimulus Measures
In the meantime, China’s economy is not out of trouble just yet. Investors should be cautious about the rapid uptick in many Chinese equities and keep in mind that the rally may be short-lived. Still, some individual companies—and even the broader Chinese market—may still offer room for growth. Indeed, some non-Chinese companies also stand to benefit from a continued rally thanks to this stimulus package.Before you consider iShares MSCI China ETF, you’ll want to hear this.MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and iShares MSCI China ETF wasn’t on the list.While iShares MSCI China ETF currently has a “hold” rating among analysts, top-rated analysts believe these five stocks are better buys.View The Five Stocks Here Wondering when you’ll finally be able to invest in SpaceX, StarLink, or The Boring Company? Click the link below to learn when Elon Musk will let these companies finally IPO.Get This Free Report
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