The New Bull Market Emerging In China “The 21st century belongs to China. Invest accordingly.”
--Warren Buffett
As 2010 draws to a close, I’ve been spending time reflecting on the year that was… and more importantly, thinking about what’s in store for 2011. Every year all of the firm’s analysts perform a year-end ‘ritual’ to decide which areas of the market offer the best opportunities for the year ahead.
Permalink: [611] Top Stocks To Buy - Top China Stocks For 2011
We look at everything from 2011 stocks to bonds, to commodities to currencies, small-caps, large-caps, growth stocks, value stocks and everything in between…
This year, the general consensus was 2011 should be a GREAT year for individual stocks.
Why?
It’s simple really.
First, the economy is growing. We have a terrific environment for economic growth given the fact that we have low inflation and low interest rates (they haven’t been this low since 1965!).
Second, corporate earnings are expected to grow 12% next year- which is AMAZING! It’s been quite a while since we’ve seen that kind of growth (even in the peak years in the mid 2000’s it wasn’t that high).
Third, the market is undervalued. We’re trading at just 12.9 times earnings- a relatively low multiple. Many experts put fair value at 13.8 to 14.2 times.
Given all of this, we have a ‘perfect storm’ that will cause the US stock market to produce VERY healthy returns in 2011…
But despite all the great things expected for US stocks… we believe even more money can be made elsewhere.
In a word: CHINA
You see, all of the positive expectations for US stocks apply to Chinese stocks of 2011 as well… magnified by 10!
After reading this report, you’ll see that the writing’s on the wall. China stocks for 2011 are about to start a powerful new bull market that could last for years…
In the pages that follow, I’m going to tell you exactly why top Chinese stocks for 2011 are gearing up for a HUGE bull market run.
Then, I’m going to share with you an ‘insiders’ strategy for getting the biggest returns in top Chinese stocks for 2011 (and no, you don’t have to open a Chinese brokerage account or move to China!)
And finally, I’m going to tell you specifically which stocks offer the biggest profit potential.
I know you’re excited as I am, so let’s get right to it…
China’s Spectacular Growth To Continue In 2011
“There is no question that China will shortly surpass the U.S. and become the world’s mightiest economic power.”
--Burton Malkiel, former member of the Council of Economic Advisors
The primary force behind the new bull market emerging in China is the country’s phenomenal economic growth. China’s economy has grown at a pace never before seen in the history of the world. And all signs point to this amazing growth trend continuing in 2011.
To understand the magnitude of China’s economic growth, look no further than the country’s stellar GDP growth. The chart below shows China’s skyrocketing GDP through early 2008. It doesn’t reflect the full year increases of 9% and 8.7% for 2008 and 2009...
But you get the picture…
Over the past 30 years, China’s economy has grown more than ten-fold. On an annualized basis, that works out to a remarkable 10% per year. (In comparison, the U.S. economy has advanced just 2.8% per year.)
What’s more, China is sprinting up the list of largest economies. In fact, China recently overtook Japan for second largest economy in the world.
Now, China has the US in its crosshairs.
Many experts believe China will pass the US in the next 15 to 20 years. No easy task considering the US economy is nearly three times larger than China’s. But according to Goldman Sachs, China will bypass the US as early as 2027.
How will it happen?
They’re going to continue developing the country’s infrastructure through massive investment in heavy industry. And at the same time, they plan on holding the top spoin world exports by further promoting private investment in the country’s light industry.
This bodes well for the country’s many industrial companies involved in building out China’s massive infrastructure. It’s also a positive sign for the thousands of manufacturing firms making up China’s export machine.
It all points to significantly higher stock prices next year... but that's not the end of the good news for investors.
There’s also another new policy… one that will stimulate even more growth and push China over the top.
I’m talking about policies for waking the sleeping giant that is China’s enormous consumer base. Consumer spending in China is very low compared to the US and Europe. But it’s poised to expand at a rapid clip in the decades ahead.
You see, China’s new five year plan places a high priority on boosting per capita income.
Right now the average Chinese citizen makes just $6,838 a year. While that’s 14 times larger than in 1980, it’s still far less than the average American’s income of $46,436. But it won’t stay that way for long.
The Chinese government’s now focusing on closing the income gap.
By investing more into social programs, the government will lower the cost of home ownership, health care, education, and caring for aging relatives. Four of the biggest expenses for the average Chinese citizen.
This means consumers will have more money to spend on discretionary items in the years ahead. Think about that-- 1.3 BILLION people with more money to buy cars, clothes, appliances, computers, smartphones, household products, jewelry and so on.
And don’t forget… we’re talking about a huge number of people spending these dollars.
With over 1.3 billion citizens, China has the largest population in the world. What’s more, over half the population now lives in the country’s fast growing cities. These citizens have higher incomes than their rural brethren and a taste for the higher standard of living their money can buy.
Here’s the key… the urban population makes up the country’s mushrooming middle class.
The size of China’s middle class is a frequent topic of debate. But most experts say it numbers between 80 and 230 million people. And while there’s disagreement over the current size, everyone agrees it’s only going to get bigger.
Here's why…
Over 600 million Chinese still live in the poorer rural areas of the country.
They’ve stood by and watched as their urban brothers’ incomes and standard of living rose much faster than their own.
Wanting more for themselves and their families, many rural Chinese are making their way to the cities.
As a result, the urban population is growing fast…
Most estimates put the number of rural Chinese migrating to the cities over the next two decades between 300 and 340 million. And by 2030, the number of Chinese living in the nation’s cities is expected to reach a jaw-dropping 1 billion!
This can mean only one thing, China’s middle class is poised grow into the largest consumer block the world has ever seen!
In fact, Euromonitor projects China’s middle class growing to a whopping 700 million people by 2030. That’s more than twice the size of the entire US population. A veritable army of Chinese consumers with money to burn.
Clearly, the companies catering to this group are sure to see huge top and bottom line growth in the years ahead. And guess what that means? STOCK PRICES GOING THROUGH THE ROOF IN 2011!
While rapid growth in GDP is a major growth driver for Chinese companies and stocks, it’s not the only one. Let’s take a look now at another powerful source of growth.
Why The Fed’s QE2 Is Bullish For Top Chinese Stocks in 2011
This past November, the U.S. Federal Reserve announced a second round of quantitative easing for the struggling U.S. economy.
Fed Chairman Bernanke explained the Fed would buy up to $600 billion worth of U.S. government bonds by the end of June 2011. The idea is the infusion of liquidity into the monetary system will stimulate lending and ultimately economic growth.
The phrase “quantitative easing” is just the Fed’s fancy term for “printing money.”Basically it's a way to expand the supply of money out there.
But here’s the key…
Not all of this new money will stay in the U.S. economy.
A good portion of it will find its way into China. You see business people have a habit of deploying capital where it will earn the highest returns. Right now that area is the emerging market economies.
And the most attractive emerging market economy is China.
To put it plainly, QE2 is creating a tidal wave of cash that’s about to wash over the Chinese economy. Tens of billions of dollars are expected to flow into Chinese companies from foreign investors every month.
And the first waves are already washing ashore.
The People’s Bank of China (PBOC) just reported “capital inflows to China increased 79% month-on-month to $77 billion in November.” According to the PBOC, “investors have moved in to take advantage of China’s strong overall economic outlook and more attractive returns.”
Here’s the upshot…
This huge flow of foreign money into Chinese companies will spur outsized revenue and earnings growth for years to come. Higher growth in turn should attract more investors to top Chinese stocks for 2011. And greater demand for these stocks should drive prices higher in 2011.
The machinations of the Fed will definitely help Chinese stocks next year, but there's another stimulus plan out there that will have a far greater impact...
Chinese Stimulus Still Creating Growth Two Years Later
When the global financial crisis hit in the fall of 2008, all eyes were focused on the US. World governments, investors, and ordinary citizens the world over watched and waited with baited breath. They wanted to see what the U.S. would do to prevent the world from falling into an economic abyss.
But, as usual, Congress did what they do best… argue about what to do without doing anything!
While US leaders were debating and posturing, China took deliberate action…
In November 2008, a full three months before the US stimulus was passed, China announced their own stimulus plan. The plan called for spending 4 trillion yuan ($586 billion) to stimulate their economy.
They didn’t form a committee to study the idea. They didn’t waste months arguing about it in front of television cameras. They moved forward as quickly as possible to save their economy (this is one benefit of the type of government China has-- they don't drag their feet on things!)
Here’s the key…
China’s stimulus not only kept their economy growing, it launched a buying spree for top Chinese stocks for 2011. From late October 2008 to early August 2009, the Shanghai Composite more than doubled in value-- with many individual securities rocketing up even more than that!
Specifically, the index surged a whopping 108%!
You see, investors realized China’s stimulus would maintain the country’s strong economic growth. And they knew this huge wave of cash would help the bottom lines of Chinese companies.
Now, here’s the best part…
This cycle is about to repeat itself but on a MUCH bigger scale. A recent news report shows China’s leaders are poised to unleash a new stimulus plan that dwarfs the massive 2008 program…
According to Reuters, China is preparing to spend a whopping $1.5 TRILLION on seven strategic industries over the next five years. Word is China’s going to invest $300 billion a year into the following industries:
• alternative energy
• biotechnology
• information technology
• high-end equipment manufacturing
• advanced materials
• alternative-fuel cars
• clean technology industries
So what do you think this tidal wave of money is going to do to top Chinese stocks for 2011? You guessed it-- it's going to fuel a superboom that could last for years!
Massive government investment is bound to drive high growth rates for companies in these industries. And private investment dollars are sure to follow pushing growth rates even higher.
In light of this shocking news, analysts are scrambling to raise their growth outlooks.
Merrill Lynch now projects China will grow 9.1% annually from 2011 through 2015. UBS upped their growth target for 2010 to 10% and expects 9% growth in 2011. And Goldman Sachs sees even more robust growth estimating gains of 10.1% this year and 10% next year.
Again, the importance of China’s staggeringly high economic growth can’t be overstated. With the economy growing 9% to 10%, Chinese companies are certain to enjoy faster growth than companies in other slower growing countries.
And when investors see this growth show up in corporate top and bottom lines, they’re going to drive Chinese stock prices through the roof!
Now, if you can believe it, there is yet another catalyst that could send Chinese stocks soaring next year. This catalyst has to do with the currency exchange rate between the Chinese yuan and the US dollar.
I know this may sound complicated, but trust me, it’s not. This is very simple stuff. The only difficult thing to understand is how such a simple dynamic could create such a huge windfall for so many Chinese companies.
As great as all that is for top Chinese stocks for 2011, there's yet another looming event that could really send shares soaring...
A Rising Yuan Would Be A Boon For Chinese Stocks of 2011
This is important to understand...
In July, growing criticism from world leaders pushed China to make a major change in their monetary policy. They finally de-pegged the Chinese yuan from the U.S. dollar. The news took everyone by surprise, and world stock markets rallied.
Why is depegging the yuan a good thing for stocks?
Given the strength of China’s economy and their stellar balance sheet, the yuan is likely to increase in value against the dollar and other world currencies. While Chinese exporters will feel a pinch, many Chinese industries will benefit from a stronger yuan.
First, Chinese companies buying raw materials in the international market will pay lower prices.
Remember, many commodities are priced in U.S. dollars. With a stronger yuan, these companies will be able to buy more commodities per yuan. This will enable them to lower manufacturing costs and boost profit margins.
Second, Chinese companies selling goods in the domestic market should see a big boost in sales.
A stronger yuan will allow Chinese consumers to buy more goods with each yuan. Again, that's 1.3 billion people buying more stuff from Chinese companies.
Armed with stronger purchasing power, spending by Chinese consumers should skyrocket. And of course, greater consumer spending will drive higher sales and profits at Chinese companies.
But here’s the best part…
If the yuan does rise against the dollar, the biggest winner will be shareholders of U.S. listed Chinese stocks of 2011. You see, the share prices of these stocks should surge if the yuan appreciates significantly (US is calling for 20% appreciation).
Here’s why…
Because the shares are valued in dollars, they will lose value every time the yuan appreciates. The only way to close the gap is for stock prices to increase and raise market valuations to the appropriate level.
Thus, a stronger yuan means higher stock prices for US listed Chinese stocks in 2011!
Now, to be clear, I’m not calling for a huge rise in the yuan immediately. The Chinesegovernment has made it clear they’re only going to allow the yuan to appreciate gradually. However, if the Chinese do allow the yuan to surge in value (as many economists and analysts are predicting), Chinese stocks are going to skyrocket.
In fact, we're already seeing it in one area that tends to lead the market...
Exploding Chinese IPO Market Indicates Huge Demand For Chinese Stocks of 2011
As you might expect, based on what I’ve told you so far, investors are tripping over one another to get into Chinese stocks for 2011. And nowhere is this more apparent, than with Chinese IPOs.
According to Barrons, “Chinese IPOs running across a number of industries have been hot tickets in recent months.”
A big reason for the surge in investor appetite for Chinese companies is an increase in quality. Barron’s goes on to report seeing a larger number of “bona fide companies with year-over-year revenue growth and strong profit.”
What’s more, investing in Chinese IPOs this year has been very profitable for investors. Half of the 10 largest IPOs this year have been Chinese companies.
Check out the stunning performance of a few recent Chinese IPOs…
• Jinko Solar (JKS) hit a high of $41.75 on November 4, 2010 for a gain of 318%
• HiSoft Technology (HSFT) hit a high of $33.47 on December 2, 2010 for a gain of 235%
• ChinaCache International (CCIH) hit a high of $35.00 on November 12, 2010 for a gain of 152%
China Kanghui Holdings (KH) hit a high of $23.16 on December 2, 2010 for a gain of 126%
• Soufun Holdings (SFUN) hit a high of $95.50 on November 11, 2010 for a gain of 125%
• China Lodging Group (HTHT) hit a high of $27.50 on October 15, 2010 for a gain of 124%
All of the above stocks did an IPO this year. And within a few months, all of them doubled in value, with some even tripling and quadrupling.
Clearly, demand for Chinese IPOs is strong. And investors are making a killing in short order.
With the global IPO market heating up, it looks like 2011 will be even better for a whole new batch of Chinese IPOs. Savvy investors knowing which ones to buy should be able to capture huge gains.
Putting It All Together
No question about it, Chinese stocks look to be THE best investment opportunity of 2011. Investors who know which trends to play and what stocks to ride are poised to rake in ENORMOUS profits.
Now, we’ve covered a lot of ground, so let’s take a minute to review.
China’s red-hot economy, with GDP growth in the 9% to 10% range, is going to continue driving strong revenue and earnings growth for Chinese companies.
On top of this, foreign investors are going to dump tens of billions of dollars more into Chinese companies thanks to the Fed’s QE2. And, on top of that, the Chinese government will throw in another $300 billion a year into strategic industries.
Then take into account a rising yuan and a red-hot IPO market and you have the makings of bull market unlike anything we've seen for quite some time!
Hopefully, you can see the trend we’re seeing. A tidal wave of cash is about sweep across China. And you know what they say about a rising tide… it lifts all boats!
The question now is what’s the best way to take advantage of this trend? Keep reading, and I’ll share with you a little known secret for reducing your risk while capturing the huge potential upside in Chinese stocks for 2011.
The Best Way To Access China Stocks for 2011
If you’ve read this far, you now understand the once-in-a-lifetime opportunity Chinese stocks are presenting for 2011. You see how strong economic growth, $1.5 trillion in government spending, the Fed’s quantitative easing, a rising yuan, and a strong IPO market all point to monumental growth for Chinese companies.
You’re ready to put some money to work. But you’re not exactly sure how to invest in Top Chinese stocks for 2011. This is a problem for many investors because China is still closed off from the outside world in some ways.
If we were talking about nearly any other country, you’d simply place buy and sell orders through your broker, who would make them for you on that country’s stock exchange. But, China’s stock market is unlike any other in the world.
Let me explain…
China has many different kinds of shares trading on their exchanges. It’s a confusing alphabet soup of A shares, B shares, H Shares, and so on. However, the bigger problem is, unless you’re a Chinese citizen or an institutional investor, you can’t even trade these shares for the most part.
Fortunately, there’s a better way to trade Top Chinese stocks for 2011…
Over the past decade, hundreds of Chinese companies have listed their shares on the New York Stock Exchange, the American Stock Exchange, and Nasdaq. And many more are trading on the OTC Bulletin Board.
In other words, you can find a large number of quality Chinese companies from a wide variety of industries.
More importantly, these Chinese companies have complied with the US exchanges’ stricter transparency, financial reporting, and accounting standards. You can have much greater confidence in the numbers reported by these companies than those listed on the Chinese exchanges.
Clearly, there’s no better way for individual investors to invest in Chinese stocks than to stick to those listed on U.S. exchanges. But which companies offer the greatest upside?
These Are The Stocks To Invest In To Take Adnatage Of the Boom In China
We have identified seven investment themes for China in 2011. These themes cover a broad spectrum of the Chinese economy. And we believe the stocks involved in these themes offer the highest upside potential (and least amount of risk).
Theme #1: Energy
China’s massive population and fast growing industries require an ever increasing amount of energy. This surging demand for all kinds of energy is driving huge growth in industries like oil and gas, coal, and nuclear power.
And since most of China’s electricity is still generated from coal, there is now rising demand for clean technology solutions. By utilizing clean technology, the country’s thousands of factories can help lower their harmful emissions.
Theme # 2: Transportation
Companies involved in building out China’s transportation infrastructure should continue growing rapidly. The government’s spending billions to build more highways, roads, bridges, railways and ports. China already has the world's second-longest set of freeways covering 28,210 miles as of 2006. This infrastructure is critical to the country’s economic growth.
In addition, China has quickly become one of the world's largest market's for automobiles- with plenty of room for further growth. Keep an eye on automakers as they all race to expand market share in China.
Theme #3: Travel/Tourism
With the country’s phenomenal economic growth, the number of millionaires and affluent citizens has grown rapidly. And one of their favorite things to spend money on is travel (provided they can get government permission of course). This powerful consumer block is driving strong growth in China’s tourism industry. Airlines, hotels, travel/ticketing agencies, entertainment businesses (casinos), and cruise lines are all benefiting from this trend.
Theme #4: Agriculture
With 300 million farmers, China is number one in the world in farm output. This means demand for farming equipment, fertilizer, seeds, and livestock feed is robust and steady. Companies operating in this industry are looking at huge growth going forward.
Theme #5: Consumer Spending
With the ongoing expansion of China’s middle class, spending on consumer products is going to rise sharply. They’re going to be buying all the same things we buy here (except for many Chinese it will be the first time).
Think of all the cars, home appliances, household products, clothes, computers, smartphones, TVs, and so on. And add on to those luxury items like luxury vehicles, jewelry, watches, designer clothing, yachts, and second homes (China is already the world's second largest buyer of luxury goods). The companies supplying these goods stand to make gobs of money.
Theme #6: Massive Population
The sheer size of China’s population is going to drive phenomenal growth in certain industries. Take healthcare for example. Think of the hundreds of millions of patients buying drugs, using medical devices, and using hospital services.
Education is another area. Businesses providing testing, tutoring, vocational, and post-secondary education services are seeing huge increases in student enrollments every year.
And don’t forget housing and construction. You need a lot of apartments and homes to shelter 1.3 billion people.
Theme #7: Banking and Financial Services
This is another population driven theme. Over a billion Chinese need bank accounts, financial planning, and insurance. And, the expansion of the country’s financial markets is creating huge opportunities for investment banks handling mergers, acquisitions, and IPOs. Nearly every financial firm in the world is banging on the door to get into China!
The Easiest Way To Make A Fortune In Top Chinese Stocks For 2011
By now it should be obvious that top China stocks could absolutely take off in 2011. All the catalysts are there. The only question is, “which China stocks should I buy”? As many of you already know, investing in top Chinese stocks is even more challenging than investing in stocks of US companies.
You have to understand how the Chinese economy works. You need to be aware of the impact the Chinese government can have, both positive and negative, on any given industry. And most importantly, you have to have the experience to sift through these companies to find the ones that will really soar.
If you have the time, knowledge and experience to do all this, that’s terrific! But for those who don’t, Hyperion Financial will soon be launching its first ever trading service dedicated solely to top China stocks for 2011!
Called China Stock Insider, this new service will focus on discovering only those China stocks and IPOs that offer outstanding profit potential without all the risk you’d normally associate with these types of stocks.
As this new service demonstrates, we feel VERY strongly about China for 2011. We truly believe you can make an absolute killing over the next 12 months with these exciting stocks…
Now, we’re still putting the final touches on the service but should have everything ready to go by the first week or two of January. Keep an eye on your email inbox for more information over the coming weeks… this is going to be big!
