According to RHB, the stock market will still be in a period of consolidation in the near term. This is due to the development of a potential trade war between US and China. If trade tension between China and US does not get resolved, RHB recommends investing in a basket of China, Malaysia and Singapore stocks that are immune to a trade war. RHB believes that any correction of equity markets is likely to offer bargain-hunting opportunities for stocks that are principally immune from the trade war.
Investors Takeaway: 3 Chinese Stocks Immune To Trade War
- Tencent Holdings
Tencent Holding’s recent share price decline was triggered by concerns over the impact of a potential trade war on Chinese enterprises in general. With the US tech sector experiencing a significant drawback in share price, Chinese tech stocks like Tencent have also suffered. In addition, the market is concerned about Tencent’s net profit margin being under pressure following the company’s guidance that it is going to invest more aggressively in 2018.
Given Tencent’s insignificant exposure to the US market, it is almost immune to a trade war. RHB also views Tencent’s plan to invest aggressively as paving the way for future growth. It is necessary for the company to invest in cloud, mobile payment, and content services. While there will be some margin pressures, Tencent should still register earnings growth of at least 30 percent, supported by its solid mobile game and deepening monetisation on Weixin traffic in the form of social commerce, social advertising.
BUY, TP HK$540
- Geely Automobile Holdings
Geely has a strong competitive edge in China’s auto market that makes it immune to a trade war. Geely’s car models are mostly between the Rmb100,000 to Rmb150,000 range. At the price range, foreign cars are not likely to displace Geely’s. As such, there is not a model that is as popular as Geely in the Chinese market right now. RHB believes that Geely will continue to expand its market share in 2018 to 6.8 percent of the Chinese market. According to RHB’s analysis, Geely will grow its volume by 32 percent and its 3-year earnings at a compounded annual growth rate (CAGR) of 29 percent on the back of cost cuts.
BUY, TP HK$29
- China South City Holdings
China South City Holdings has a unique business model in the development and sales of trade centres and residential apartments in China. Since the trade war fears begun, China South City’s share price has been a laggard.
According to RHB, China South City has a few earnings core drivers that will negate the effects of a trade war. China South City’s increasing earnings contributions from residential segments and a steady pick-up of onshore manufacturing activities will help China South City’s earnings hit 15 percent CAGR. As capital continues to flow into China’s property sector amid rising fear of a full-blown trade war, investors will be looking for undervalued plays. With a relatively undemanding valuation of 72 percent discount to end-FY18F estimated net asset value, there is strong potential for a catch-up in valuation for China South City.
BUY, TP HK$2.20