During the last global boom, China was the red-hot leader of world growth. Then the global recession enveloped the world, including China, and sucked the momentum out of China's burgeoning growth. China's GDP growth for 2008 was 9%, down from 13% in 2007.
As a result, China decided to make a bold move to preserve its sizzling economic growth and stave off global recessionary forces. Last November, the government injected a $586 billion economic stimulus package into the local economy. Following that move, the Chinese government is considering a second-round injection that could roll out as early as this week.
This entire stimulus is targeted at building infrastructure that recently slowed to a turtle's pace after China's export economy collapsed. This all means a big boost for China, and a big boost for investors properly positioned to cash in on China's efforts. Companies that operate in the basic materials sector that serve construction industries and the like stand to benefit -- and so could you. The silver lining is that the government is serious about jump-starting the infrastructure portion of its economy -- both stimulus plans address this -- which means that China will most likely continue to spend money on internal infrastructure until it's thriving fruitfully once again.
To dig up some of the companies most likely to benefit from China's stimulus infusion, I ran a screen using the Motley Fool's CAPS screening tool. My search criteria included:
- Companies in the basic materials sector
- Companies with CAPS ratings of four and five stars, the two highest ratings from our CAPS community
Following that, I picked out companies based in China with businesses that focused on providing materials or services that could aid in China's infrastructure build-out. Here are six from that screen that fit the bill:
|
Company |
Similar to |
Company Description |
CAPS Star Rating (out of 5) |
|---|---|---|---|
|
Aluminum Corporation of China |
Alcoa |
Engages in bauxite mining, alumina refining, and aluminum smelting. Principal products are alumina and primary aluminum. |
***** |
|
China Petroleum & Chemical |
Chevron |
Oil, gas, and chemical company. Explores and develops oil and natural gas; makes chemicals for industrial uses. |
**** |
|
China Precision Steel |
Arcelor Mittal |
Steel maker. |
***** |
|
ShengdaTech |
Terra Industries |
Producer of ammonia-based fertilizer and nano precipitated calcium carbonate, which is used in the manufacturing of paints, rubber, plastic, and tires. |
***** |
|
Yanzhou Coal Mining |
Arch Coal |
Coal producer and transporter via rail. |
**** |
|
Fushi Copperweld |
No direct comparison |
Manufactures bimetallic wire products, a substitute to copper. |
**** |
Data from Motley Fool CAPS.
Let's look a little more at Fushi Copperweld. Fushi is China's largest manufacturer of bimetallic wire (copper wrapped around a core of steel or aluminum), which is a substitute for copper and can be cheaper, especially if commodity prices heat up again. The wire is used in a wide range of applications, including telephone lines and network signal transmission cable, among others. As China has said that railroad infrastructure will get an additional $2 billion this year, Fushi could benefit by supplying a major component of the electric railway conductor lines.
These companies are a good starting place for investment research -- but that's all they are. You'll need to dig deeper into the businesses to see not just how much exposure these companies have to the government's stimulus, but whether they really are good companies for you to own. Remain mindful of the company's fundamentals and growth prospects.
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