The Zacks Analyst Blog Highlights: China Life Insurance, China Unicom and Concord Medical Services

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Dec 16, 2014, 09:30 ET

CHICAGO, Dec. 16, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the China Life Insurance Co. Ltd. (NYSE:LFC-Free Report), China Unicom (Hong Kong) Ltd. (NYSE:CHU-Free Report) and Concord Medical Services Holdings Ltd. (NYSE:CCM-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday's Analyst Blog:

3 Stocks to Ride the China Rally

Chinese stocks have set a fierce pace since late last month. A large number of investors are crowding into the market, further fueling a remarkable rally which has led to a spike in prices. Most of the buying has taken place through borrowing, leading to several warnings from the country's market regulator. However, the rally shows no signs of abating after being ignited by a recent reduction in China's interest rates.

Rate Cut Move

On Nov 21, the People's Bank of China (PBOC) announced its surprise decision to reduce interest rates. The country's central bank decreased the one-year benchmark lending rate by 40 basis points to 5.6%. This is the first reduction in rates undertaken in more than two years. Market watchers were taken by surprise since the PBOC has til recently stuck to more moderate stimulus measures.

The following Monday, the benchmark Shanghai Composite Index jumped 1.9%. The benchmark index gained 7.9% over that week, the highest increase since Oct 2010. It also increased 11% over last month, the highest gains registered since Dec 2012.

Over the next week the benchmark gained 9.5%. During the two weeks following the rate cut, close to 5,00,000 new investor accounts were created to trade on the Shanghai stock exchange. This was revealed by the China Securities Depository and Clearing and the pace of new account openings has doubled since the move.

Economic Weakness

The move to reduce rates has come after several economic reports indicated weakness in the economy. Dismal manufacturing data and a slump in the real estate sector meant that the GDP growth target looked increasingly unattainable. This has forced the PBOC to undertake monetary easing. PBOC had previously refrained from taking such a step for quite some time.

Meanwhile, the government had undertaken several reform measures targeted at specific sectors to boost growth. This included increasing the pace of reforms of state-owned companies.

However, recently released data on industrial production indicate that the economy's troubles are far from over. Industrial production increased by its slowest pace in three months during November. Closure of factories has intensified a slump in manufacturing. Meanwhile, major players in the property sector have started pumping funds into the bourses as a sectoral slowdown makes equities increasingly favorable.

Is the Rally Sustainable?

Major banks and market watchers alike believe that more rate cuts are in the offing. Monetary easing continues to take place globally with similar measures being introduced in Japan and Europe. The PBOC may go on to reduce reserve requirements for banks which remain unchanged since May 2012.

Last Monday, the Shanghai Composite Index moved above the 3,000-mark for the first time in three years, gaining 2.8%. On Tuesday, Chinese stocks experienced their steepest decline in nearly four years. This was a direct consequence of the market regulator's decision that bonds with low ratings could no longer be used as collateral for certain short-term loans.

Stocks went on to experience one of the most volatile weeks in recent times with gains coming in following speculation that the PBOC will ease monetary policy further. Meanwhile, losses have occurred due to profit taking and fears that recent gains have been excessive in nature.

However, analysts were of the view that valuations were low and there were indications that the government would ease monetary policy further to boost the economy. This would provide stocks with the necessary impetus to make further gains. They opined that given the enthusiasm among retail investors, there was reason to believe the benchmark would continue to gain over the remainder of the year.

Our Choices

Below we present three stocks which will gain from these trends, each of which also has a good Zacks rank.

China Life Insurance Co. Ltd. (NYSE:LFC-Free Report) is China's leading life insurance company. It is a subsidiary of China Life Insurance (Group) Company (CLIC), which is a Fortune Global 500 company. China Life is a leading provider of annuity products and life, accident and health insurance in China. It is also involved in short-term health insurance and other insurance-related services for individuals and groups.

China Life Insurance holds a Zacks Rank #1 (Strong Buy) and has expected earnings growth of 35%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 17.65.

China Unicom (Hong Kong) Ltd. (NYSE:CHU-Free Report) provides a wide range of telecommunication services throughout China. With approximately 30% share of the total mobile phone users in China, the company is the second largest wireless operator in the country, behind China Mobile. Spanish Telecom giant Telefonica currently holds a 5.01% stake in China Unicom.

Apart from a Zacks Rank #2 (Buy), the company has expected earnings growth of 30%. It has a P/E (F1) of 16.04x.

Concord Medical Services Holdings Ltd. (NYSE:CCM-Free Report) operates a chain of diagnostic imaging centers across China. Concord owns a wide network based in over 70 hospitals across more than 50 cities. Nearly all these hospitals have the highest rankings in terms of size and quality in keeping with the latest standards of China's health ministry.

Concord Medical Services holds a Zacks Rank #2 (Buy) and has expected earnings growth of 34.4%. It has a P/E (F1) of 14.84x.

The outlook for China stocks continues to be strong despite recent volatility and subsequent control measures taken by the market regulator. Most analysts expect the benchmark index to consolidate around the 3,000 mark. Given the continued appetite of retail investors for Chinese stocks, adding these stocks to your portfolio would be a prudent choice.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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