Three Profitable U.S. Plays on the Lucrative Chinese Auto MarketIt’s no secret that China is the biggest market for numerous raw materials, such as cement, steel, coal, copper, and oil, along with end-products, such as vehicles and mobile phones.
The growth of the middle class and wages in the country is the vital attraction for companies to go and set up shop there. Credit Suisse estimates the household wealth in the country will double to $35.0 trillion by around 2015, based on achieving sustainable gross domestic product (GDP) growth at or near the current growth rate. Moreover, the government’s strategy to drive domestic consumption will also help to push up the demand for goods and services.
An area in the Chinese economy that I continue to believe has tremendous long-term potential is the auto sector, but the short-term will pose some hurdles due to some buying limits imposed by the government.
The Chinese motor vehicle market is the largest in the world, and it continues to distance itself from the United States. The upward demand for vehicles remains in spite of the government’s efforts to limit vehicle sales in many of China’s largest cities in an attempt to cut pollution.
As a potential market for vehicles, China remains tops. Auto sales surged 16% in November following a 24% jump in October, according to the China Association of Automobile Manufacturers. (Source: China Association of Automobile Manufacturers web site, last accessed December 11, 2013.) About 1.7 million vehicles were sold for an annualized growth of 20.4 million. By comparison, sales of autos increased nine percent in the United States in November to an annualized rate of 16.4 million vehicles, according to Autodata. (Source: “US auto sales hit fastest pace since 2007,” L’Agence France-Presse, December 3, 2013.)
Foreign automakers continue to generate some of their greatest growth in China. (Read “Where to Find the Best Potential Growth in the Automotive Industry.”) General Motors Company (NYSE/GM), which sold 212,060 vehicles in the U.S. in November, managed to sell 294,500 vehicles in China in November, making it the country’s top-selling automotive brand. What this means for U.S. investors is that you can buy General Motors as a play on the Chinese auto market.
Of course, you can also take a look at U.S.-listed Chinese auto parts makers, such as China Automotive Systems, Inc. (NASDAQ/CAAS) and SORL Auto Parts, Inc. (NASDAQ/SORL).
China Automotive Systems (CAS) is the larger of the two Chinese auto part plays. The company manufactures and distributes power-steering components and systems via eight Sino-foreign joint ventures in China. Sales in the third quarter jumped 24% year-over-year to a record $90.9 million for the quarter.
China Automotive Systems Inc. Chart
Chart courtesy of www.StockCharts.com
The chart of CAS above shows an upward channel since the beginning of the year coming off a bullish double bottom in 2009 and 2012 as the stock eyes $12.50 and $17.50, based on my technical analysis.
So while the largest automotive market in the world may be a 15-hour plane ride away, there are several U.S.-listed Chinese stocks or U.S.-based auto stocks that U.S. investors can consider in order to profit from this lucrative market.
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