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New year, new opportunities in China
新正如意 新年发财! Happy Chinese New Year!
The Chinese believe we should start the new year doing lucky things to kick off a good fortune.
We shall, and we do hope such great fortune, along with happiness and prosperity, is bestowed upon you as well.
On the side note, it’s amazing to see Chinese New Year being celebrated and recognized all over the world now, thanks to China’s growing influence, both economic and cultural. The country’s population is massive, as we all know, and its people scatter across all continents.
The Chinese presence can be felt no matter where you are and what you do…
Being an investor, we sure are curious about the investment opportunities that exist in China, a serious rival to the U.S. that is projected to become the world’s biggest economy in a couple of decades.
From a macro standpoint, China does boast many promising factors:
- Economic reforms that shift the country’s focus on manufacturing for export to domestic consumption instead, not to mention financial and investment liberalizations
- Strong policies on human development, anti-corruption, and IT and infrastructure upgrade
- President Xi Jinping’s ability to serve unlimited terms, giving investors confidence in the stability and continuity of the above policies
In terms of stock investment, there are 2 main share classes in China, each contains stocks with unique characteristics. H-Share consists of companies incorporated in the People’s Republic of China or mainland China but are listed in the Hong Kong Stock Exchange (HKEX) and traded in Hong Kong dollar. The other is A-Share, which is made up of companies incorporated in the PRC and are listed in the Shanghai Stock Exchange (SHSE) or Shenzhen Stock Exchange (SZSE) and are traded in Renminbi.
H-Shares
The main draw of H-Share is reliability. Due to higher accounting standards in Hong Kong, Asia’s financial hub, companies listed in the HKEX pose fewer risks of accounting fraud, thus less risky investments.
However, H-Share doesn’t really represent China’s economic and consumption boom, as stocks within this class are mainly blue-chip companies, about 50 of them, that fall into either the financial or energy sector. They are large-cap companies like Tencent Holdings Limited, ICBC Limited and PetroChina Company Limited
Moreoever, 13 out of 50—about 26%—of H-Share stocks posses a Jitta Score between 7 and 10, indicating strong fundamentals. This is a proportionally high number compared to other stock exchanges.
Jitta Ranking Top 5 for H-Share as of February 1, 2019
- China Merchants Bank Co., Ltd. Jitta Score 8.25 | 20.61% Below Jitta Line
- Anhui Conch Cement Company Limited Jitta Score 6.80 | 58.23% Below Jitta Line
- China Vanke Co., Ltd. Jitta Score 7.10 | 89.53% Below Jitta Line
- Bank of China Limited Jitta Score 7.75 | 128.17% Below Jitta Line
- China CITIC Bank Corporation Limited Jitta Score 7.35 | 141.10% Below Jitta Line
A-Shares
Meanwhile, A-Share offers variety—there are about 3,500 listed companies in this class—and a chance to invest in the “new economy” businesses that have experienced unimaginable success and whose market caps have increased consistently, like Qingdao Haier Co., Ltd. and Caihong Display Devices Company Limited
Plenty of choices and a growing economy make A-Share a treasure trove for value investors, having about the same proportion of wonderful companies as the U.S. stock markets. That is, there are about 190 A-Share stocks with a Jitta Score between 7 and 10 in SHSE and SZSE, which is equal to 5.42%. The NYSE and NASDAQ together have 249 stocks with a Jitta Score between 7 and 10, which is about 5.15%.
Plus, you can find a wonderful company at a fair price in any sector of A-Share, like finance, construction materials, real estate, consumer goods, industrials, healthcare and technology.
Jitta Ranking Top 5 for A-Share as of February 1, 2019
- Bank of Ningbo Co., Ltd. Jitta Score 8.40 | 91.42% Below Jitta Line
- China CAMC Engineering Co., Ltd. Jitta Score 8.05 | 129.59% Below Jitta Line
- China Merchants Bank Co., Ltd. Jitta Score 8.25 | 15.75% Below Jitta Line
- Jiangxi Wannianqing Cement Co., Ltd. Jitta Score 7.10 | 69.61% Below Jitta Line
- China Vanke Co., Ltd. Jitta Score 7.45 | 86.83% Below Jitta Line
A lucrative market attracts speculators, however, and A-Share has a bunch of them. Around 70% of A-Share investors are retail, and the market is noticeably more volatile for that reason.
But within market inefficiency is a great opportunity for value investors, who invest in “a wonderful company at a fair price” and hold like Warren Buffett, the world’s most successful investor.
You can invest like Buffett, too. Just pick the top 30 stocks as sorted by Jitta Ranking, hold them for a year and rebalance the portfolio. If you did this consistently since 2009, your compounded annual growth rate could be higher than the market average, as shown by our backtest.
Finding a wonderful company at a fair price using Jitta Ranking is easy and free. Just sign up at www.jitta.com and go here to see H-Share stocks ranked by Jitta Ranking.
But if you’d like to access A-Share stock data, which is still in Beta, you will need to request access and join our Beta program at www.jitta.com/beta. This will give you an opportunity to view SHSE and SZSE stock data along with 15 other markets before they are launched.
Who knows, maybe this year will bring you an especially good fortune: a chance to invest in a wonderful company at a fair price in China!