Jan. 21, 2010 (Chinavestor) China surprised the world again - this time with a 10.7% GDP growth in the fourth quarter of 2009, +0.2% above consensus estimates. Stocks in Shanghai reacted positively for the news with financial institutions taking the lead on Thursday. The irony is that there is nobody out there who'd know for sure which sectors are gong to benefit the most - so banks outperformed. Conventional wisdom prefers financial stocks assuming they'll growth with the overall economy regardless of sector rotation. Looking at the best thirteen stocks of the SSE-50 Index on Thursday, the largest 50 companies of Shanghai Composite Index, nine are banks, three are insurance companies and one is a railway.
|Name (Ticker)||Change %|
|1||S/Pudong Development Bank (SHA:600000)||+3.4|
|2||Huaxia Bank Co (SHA:600015)||+2.9|
|3||Daqin Railway Co (SHA:601006)||+2.8|
|4||Bank of Communications (SHA:601328)||+2.3|
|5||China Construction Bank (SHA:601939)||+2.3|
|6||China Life Insurance (SHA:601628)||+2.2|
|7||Industrial Bank (SHA:601166)||+2.0|
|8||Ping An Insurance (SHA:60318)||+2.0|
|9||China Merchants Bank (SHA:600036)||+1.8|
|10||Industrial and Commercial Bank of China (SHA:601398)||+1.8|
|11||China Citic Bank (SHA:601998)||+1.8|
|12||China Mingseng Bank (SHA:600016)||+1.7|
|13||China Pacific Insurance (SHA:601601)||+1.6|
So what does this mean for American investors?
With no Chinese financial institution listed on American stock exchanges, the best proxy for banks is the financial heavy weight iShares FTSE / Xinhua 25 Index China Fund (NYSE:FXI).
Among insurers, China Life Insurance (NYSE:LFC) has multiple listings beyond Shanghai, and is listed on the NYSE.
Taking a closer look at the latest GDP numbers the double digit grow is not just impressive on its own but is part of a broader trend - GDP has been accelerating throughout 2009.
China 2009 Quarterly GDP Growth
Source: National Bureau of Statistics
Given that the Chinese government targeted 8% GDP growth for 2009 at the height of the financial crisis, and many doubted it's possible, the 8.7% growth is extremely remarkable. Let's take a quick look what's behind such a stellar growth and what potential downside risks remain for 2010 and beyond.
China launched a RMB 4 trillion ($586 billion) stimulus package in November 2008 to encounter the global financial meltdown. Chinese export fell double digits and skeptics doubted if domestic consumption would be able to make up for steep losses in exports. And while the recovery in exports took 13 months, fixed asset investment, domestic consumption and strong retail sales helped China to achieve a V-shaped recovery.
Some of the economic highlights of 2009 in numbers:
- fixed asset investment increased 30.1% in 2009 from a year earlier
- retail sales rose 16.9%
- number of vehicles sold reached 13 million, an increase of 45%, surpassing the U.S. for the first time. The government assisted with subsidies and tax credits
- exports fell for a straight 13 months but started to increase in November and accelerated in December 2009
- housing prices soared 24% in 2009 to their highest level in 15 years. Many now fear that a property bubble is building up threatening a Japan style credit crunch
- inflation picked up in November and December after 9 months of decline. Consumer price inflation (CPI) grew to 1.3% in November 2009 and further to 1.9% in December
- too early exiting from stimulus