Chinese stocks expected to be in the spotlight

Chinese stocks expected to be in the spotlight
A stimulus package was unveiled in Beijing on Wednesday, designed to boost spending on railways and encourage other construction.

Regional investors have been increasingly worried about China's outlook but a mini stimulus package this week from Beijing has reignited interest in some China stocks here.

Even as tensions in Ukraine ease and the United States Federal Reserve tapering gets into full swing, market experts have still been casting a worried glance at a likely growth slowdown in China.

"Higher demand from recovering advanced economies will be dampened somewhat by moderating growth in China," noted the Asian Development Bank in a report out earlier this week.

Economic growth in China is tipped to lose pace in the next two years, dimmed by tightened credit growth and reduced industrial overcapacity, among a host of other factors. The Asian Development Bank expects growth in the world's No. 2 economy to slow to 7.5 per cent this year and 7.4 per cent next year from 7.7 per cent last year.

However, gloom has turned to glee for some investors in recent days following a package unveiled in Beijing on Wednesday designed to boost spending on railways and encourage other construction.

The new stimulus plan "means policymakers don't want to take the risk of seeing growth slipping to below 7 per cent", noted HSBC economists Qu Hongbin and Sun Junwei. "The government is clearly signalling that it intends to follow up with real policy actions to maintain growth."

Investors wasted little time in reacting to this news, showing strong buying interest in Singapore-listed Midas Holdings, which makes aluminium parts for trains in China. The counter has slumped nearly 10 per cent in the last three months but rallied as high as two cents to 47.5 cents yesterday before closing a cent up at 46.5 cents.

"China's new round of high-speed rail investment and other impending developments in the industry bode well for Midas," said Maybank Kim Eng analyst Wei Bin, who has a buy call with a price target of 75 cents. "The recent price weakness offers a good buying opportunity... Midas presents a compelling earnings turnaround story."

Overall, brokers said they are seeing more interest in China-related stocks of late as investors seek to cash in on new developments on the mainland.

The FTSE ST China Index made a total return of 1.2 per cent in the first quarter of this year, noted a Singapore Exchange My Gateway report, outperforming the FTSE ST All Share which gained 1.1 per cent. As of yesterday, the China Index is up about 1 per cent for the year.

One recent market favourite is shipbuilder Yangzijiang, whose stock price jumped 6 per cent this week to close at $1.14 yesterday.

Investors have been flocking to the stock after the firm announced it has secured 18 new contracts worth US$815 million (S$1 billion) earlier this week.

DBS Group Research analyst Ho Pei Hwa noted: "We favour Yangzijiang as the most competitive and profitable shipyard in China on the back of its strong execution, industry foresight and ability to move up the value chain more quickly than peers."

The China factor was also at play in Singapore-listed Noble Group's recent resurgence, following news that the commodity firm will be selling a 51 per cent stake in its agricultural business to Cofco Corp - the mainland's largest grain trader.

Noble shares are up nearly 20 per cent so far this year, closing at $1.28 yesterday.

Analysts say Noble will stand to gain financially from the deal in ways such as having a lower gearing, interest savings and improved earnings.

But CIMB analyst Yeo Zhi Bin advised investors to take profit on Noble. He noted: "We believe that the above positives have been priced in. Although the upside could come from a sector re-rating or a bumper payout, we struggle to find strength in a slow coal market. We also expect the bulk of the proceeds to be used for paring down debt."

This article was published on April 5 in The Straits Times.

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