5 China Stocks To Buy As Red Dragon Outshines Asia

China’s stocks are making a blistering comeback this year after a dismal 2016. In fact, a cursory analysis indicates that the world’s second largest economy’s financial markets are outperforming all of their Asian peers. This is particularly true for ADRs, since the MSCI China index, a gauge of the country’s stocks listed in New York and Hong Kong, is up 10.6% year-to-date

Such an increase compares favorably with the S&P 500’s 4% increase and the MSCI Emerging Markets index’s 8.5% gain over the same period. Currently at its highest level since Oct 2016, the index’s success indicates that this may be a good time to pick up and profit from China’s stocks.

Encouraging Earnings Edges Out Concerns Over Protectionism

Ever since President Trump took office, speculation has been rife that his administration will implement policies detrimental for China.Such concerns first emerged during his campaign, when Trump said he would impose stiff tariffs on the country and designate it as a currency manipulator.

However, investors and fund managers have ignored such fears and chosen to focus on the improvement in corporate results. Companies included in the Hang Seng China Enterprises Index have experienced a decline in their EPS over the past two years. But most analysts and market watchers think earnings will rebound this year.

One estimate puts the increase in earnings at 7.84%, with a similar gain projected for next year. Questions still remain about whether such growth will at all take place. However, stocks from the region still offer great value, given that the MSCI’s forward price to earnings ratio for 2017 stands at 12.5, significantly lower than the S&P 500’s reading of 17.8.

Positive Economic Data Creates Optimism

Meanwhile, recent economic data is also urging investors took take a fresh look at China’s stocks. According to data released on Tuesday, the country’s PPI increased to its highest level since Aug 2011 in January, registering an annual increase of 6.9%. Several economists believe that reform measures being pursued on the supply side have begun to take effect.

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