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Market mayhem has hidden jewels

By Wang Lan (China Daily)
Updated: 2009-01-21 08:01

Despite the darkening economic outlook that is casting a long shadow on the Chinese corporate sector, there are bright spots beneath the stock market gloom waiting to be discovered and exploited by suave investors.

These are the recession-proof stocks that can be found in such industries as power transmission equipment, agriculture-related products and railway infrastructure construction, stock analysts said.

Companies producing power transmission equipment would outshine other sectors, because of the sharp drop in material cost in the second half of 2008, which has contributed to their profit growth.

Industry analysts said the sector would get a further boost from the falling metal prices in the months ahead and the large government expenditure in infrastructure development as part of its efforts to stimulate domestic economic growth.

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Steel and nonferrous metal prices have experienced a sharp fall since August 2008, despite some recent price recoveries.

"The industry is expected to have an average profit growth of 20 percent in 2009," said Shao Yukai, a power equipment sector analyst at Industrial Securities Co in Shanghai.

"The anticipated continuous drop in material cost would even push the profit of some key enterprises in this sector up 50 percent in 2009," Shao added.

The heavy investment in power infrastructure construction is also widely seen as a major contributor to the sector growth in the coming years.

Industry figures show that the combined new investment in power equipment construction by the State Grid and China Southern Power Grid will reach 944 billion yuan in the next two years, up 43.03 percent from the total investment in 2008.

Analysts and traders also said railway construction and agriculture-related companies would show high growth potential in the coming years, because these two sectors would largely benefit from the government stimulus plan.

The approval of 2 trillion yuan investment in railway construction by the State Council in October 2008 is expected to take effect in the coming three to five years and keep fuelling the sector growth.

In this sector, Zhejiang Tianma Bearing Co has forecast a net profit growth of 100 to 110 percent for 2008.

Agricultural-related companies are also expected to improve their performance in the coming years, as about 9.3 percent of the 4 trillion yuan government stimulus package is going to agriculture-related projects.

Stocks in this sector have outperformed the key index since the government introduced the stimulus package in early November.

The share price of Heilongjiang Agricultural Co Ltd increased an aggregate 24.4 percent to close at 12.58 yuan from Nov 10, 2008, while the share price of COFCO Xinjiang Tunhe Co Ltd, a listed unit under China Oil and Food Corporation, rose 48.5 percent during the same period to 11.12 yuan.