AU_Weekly videos_5 stocks_Thumbnails_for_Jess_logo_1024x768_v3

Video: Five stocks to watch amid China easing restrictions and Asia bracing for a cold snap

Jessica Amir
Market Strategist

Summary:  WATCH this six minute video for stocks to watch, that could benefit from China easing restrictions and from an icy Asian winter. We explore why equities exposed to China are seeing the best gains so far this month among Saxo’s equity baskets. Plus ahead of Chinese New Year holiday Alibaba shares are up 25% month-on-month while JD.com is up 15%. But are these gains are sustainable? Plus why you need to watch coal companies who export to Asia, who have a history of notching triple digit earnings growth.

Equities exposed to China are seeing the best gains so far this month

Stocks in Saxo’s China Consumer and Technology basket have recorded the strongest performance this month, across the entire Saxo Equity themes we track. It’s because five major cities in China (including Shanghai, Hangzhou Beijing, Shenzhen and Guangzhou) relaxed some covid restrictions, also, China said it would relax mass testing and quarantine requirements, and dangled the carrot to potentially ease restrictions further.

Given the world’s second biggest economy wants to lead global growth next year, there is a lot of catching up to do, and both whispers and expectations China will ramp up pro-growth fiscal support including to property developers and home buyers. Meanwhile, given China will likely encourage domestic consumption ahead of Lunar New Year holidays and the Spring festival  (on January 21).

So as equity valuations are forward looking; we’ve seen investors and traders increase their exposure to Chinese facing equites (from the end of October 2022); hoping consumer and business spending improves, from pent up demand and policy support.

In Saxo’s China Consumer and Technology basket you can see Alibaba has done well. Its shares have rallied 25% month on month on expectations pent up demand will likely flow to its balance sheet, as 70% of its income is from online-China sales. Alibaba is also based in Hangzhou, one of the cities easing restrictions. Although Alibaba shares are down 70% from their high, the market expects 2023 profit margins to be the same as 2022. So, that could cap long term share price growth. 

Another stocks in Saxo’s China and Consumer Tech basket, is fashion giant JD.com. Its shares are up 15% month-on-month on hopes that retail spending will rise, particularly in China. 90% of its revenue is from retail. And market consensus suggests profit margins will improve in 2023, with revenue to rise 15%, while consensus forecast expenditure to drop, and free cash flow to rise about 30%. So that seems really supportive (if it comes to fruition). However, the jury is out on its profit growth, expecting growth to be the same in 2023 as 2022.   


Separately keep energy stocks on your radar, which could see an increase in demand amid the cold snap headed for Asia

Weather forecasts suggest Asia is set for a harsh winter, so demand for energy commodities; such as coal and gas will likely pick up, while their prices are elevated. Some Asian countries are dependent on coal for electricity - 70% of China and India's energy needs are met by coal, 60% of Australia's energy comes from coal, ~25% of Japan's energy comes from coal. And as such, this is why coal demand usually peaks in January; in line with electricity demands. If you have ever been to China in January you may remember the air being thick with smog.

We also need to consider, the Newcastle coal price, for exported Australian coal is back at record all time highs; meaning power prices in Asia are likely to bite. But consider, China still has an import ban on Australian coal. So potentially consider looking at companies who sell coal to other countries  - who are somewhat dependent on it to get through this winter.

It may be worth looking at New Hope Corporation who sells 50% of its coal to Japan, and over 10% to Taiwan. Whitehaven Coal sells the majority of its coal to Japan, and 15% to Taiwan. While Coronado Global sell 40% of its coal to the United States. Also consider in 2022, these companies saw triple digit earnings growth which has boosted their shares 80-200%.

We know past performance is not an indication of future performance, but these are some stocks to keep an eye on.

To find Saxo’s China Consumer and Technology basket or information about the stocks mentioned, head the Inspiration page after you’ve logged in, then click on stocks. 

-----


For a weekly look at what to watch in markets - tune into our Spotlight.
For a global look at markets – tune into our Podcast.


 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.