- Strategists at the bank called three companies a “buy” because of economic growth in China’s small cities and rural areas.
- This is also coming as China’s capital city Beijing has been trying to control a local Covid outbreak since late April.
- Thanks to the better living conditions at the moment in small cities than in large cities, strategists believe that consumers are happy and it will be a good opportunity to invest in 3 actions that are going “unnoticed”.
JP Morgan cited a report out of China that could be a good buying opportunity for stocks that are going “under the radar.”
The document points out that China’s small cities and rural areas are growing economically on a larger scale than big cities such as Beijing and Shanghai.
This is because metropolises have been struggling since the end of April with a new local coronavirus outbreak, prompting governments to order people to stay at home.
What does this have to do with buying opportunities? It’s that consumers in China’s smaller cities are more willing to spend than those in big, well-known cities, JP Morgan analysts said.
“The cost of living is still low, and the infrastructure and opportunities are only slightly worse than top-tier cities, and access to health care, education, and other public services is readily available. As a result, lower-tier urban consumers are happier, buying more, swapping and driving aspirational purchases, according to our expert.”
JPMorgan.
Against this backdrop, the bank named three stocks for investment with a “buy” rating.
Midea
It is a Chinese home appliance giant listed in Shenzhen. Of all the companies analyzed, Midea had the largest projected lead, growing 71%, as of the report’s release (June 14).
Net profit attributable to shareholders grew nearly 5% in 2021 to 28.57 billion yuan ($4.26 billion).
The company noted that Chinese consumers are increasingly buying larger washing machines to replace smaller ones, and purchasing dishwashers with more features, such as sterilization and drying.
China Resources Beer
The Hong Kong-listed company is engaged in the production of alcoholic beverages and owns popular local beer brands such as Snow, as well as having a partnership with Heineken.
The company has the second-largest lead on JPMorgan’s stock listing, with an estimated 67% gain as of the report’s release.
China Resources Beer announced that profit attributable to its shareholders more than doubled last year to 4.59 billion yuan. Earnings from sales in the less developed region of central China, before interest and taxes, grew by almost 57% in 2021.
BYD
It is perhaps the best-known company of the three. BYD is currently an emerging leader in China’s electric and hybrid vehicle market.
According to JPMorgan, it is the automaker with the biggest lead on the bank’s list, at 30% at the time the report was published.
The company became more popular when it became known that Warren Buffett opened a position in it. BYD competes with other big names in the industry like Nio, Li Auto, Xpeng and Tesla.
Last year, BYD said profit attributable to shareholders fell 28% to 3.05 billion yuan, mainly due to a change in product mix that hurt profits.
