A favorite activity of many investors is watching China. The country has been the leading driver of global growth for many years now, and each economic release from the country is watched closely by investors. And for good reason — signs of renewed growth can drive markets higher while any signs of reduced economic activity can cause prices to head lower.
Despite a blip of recent weakness — recent PMI reports show that both the services and manufacturing sectors have been slowing — China is still expected to be one of the world’s fastest-growing economies. But the upward trajectory may be running out of momentum. This volatile situation creates some problems for investors in the largest emerging market.
When I put the 40 largest U.S.-listed stocks into Portfolio Grader, some clear trends become visible. The total portfolio earns just a mediocre “C” grade, as corporations in the nation are seeing slower earnings momentum and cash flow generation. Let’s look at some individual names through the prism of this powerful screening tool.
It is clear from the ranking of materials and energy companies that demand has been slowing. PetroChina (PTR), the largest U.S.-listed Chinese company, was downgraded to a “strong sell” in the past week as analysts downgrade the stock and slash estimates. Aluminum Corporation of China (ACH) is another economically sensitive stock that is not doing well in the current Chinese economy. That stock is currently rated “sell” by Portfolio Grader.
China Life Insurance (LFC) is the largest financial services company listed in the United States. This issue had been one of the great growth stories as investors embraced the idea of billions of citizens buying life insurance and annuity products. In recent months, however, it has become clear that the growth is slowing — the Chinese middle class of consumers is not being created as quickly as many had hoped. The stock was downgraded by Portfolio Grader to a “D” rating back in February as fundamentals weakened, and it remains a “sell.”
China Telecom (CHA) is the fourth-largest U.S.-listed company, and it’s not seeing strong results in the current economic environment either. Profits fell last year by more than 10% and analysts are not expecting too much of an improvement this year. The stock has been ranked “D” by Portfolio Grader for most of the past year and remains a “sell.”
Of the five largest Chinese stocks that are listed in the U.S., four of them receive a rating of “sell” or “strong sell.” Only China Petroleum & Chemical (SNP) has fundamentals that do not merit a sell rating. The shares have been rated “C,” or “hold,” by the stock-grading service for some time now as earnings growth has been mediocre at best. Better than the other four, but still nothing to write home about.
While many pundits will try to guess the direction of China’s economy, it’s clear from the fundamentals of the largest Chinese companies that the economy is struggling to regain momentum.
Louis Navellier is the editor of Blue Chip Growth.