A handful of U.S.-listed stocks could still benefit from the sizable monetary stimulus that the People’s Bank of China is unleashing.
China’s economy has recently experienced slowing growth, prompting the PBOC to implement new stimulus measures. Wednesday morning, the central bank announced a half percentage point decrease in the reserve-ratio requirement for Chinese banks. That frees up about 1 trillion Yuan, or roughly $140 billion, for banks to lend. It’s no small amount, at almost 1% of expected economic output in the country for this year.
What’s more, the central bank signaled that it intends to continue the monetary support, should the economy elicit such moves. PBOC governor Pan Gongsheng said that plans to support loans for high-quality real-estate developers are in the works.
The bottom line is that China’s economy could enjoy a boost.
That’s why Evercore strategists screened for shares of U.S.-listed companies that have recently seen at least 10% of their revenue from China. Many are consumer companies that should see a boost to sales in China since consumers will likely spend more money than previously expected. The best news of all is that some of these stocks haven’t even moved much since the news. That means, should business in China turn out better-than-expected—assuming operations in the rest of the world were to perform as expected—these stocks likely have room to rise.
Evercore’s list includes
Electronic Arts,
Las Vegas Sands,
Wynn Resorts,
auto-parts maker
Aptiv,
State Street,
and apparel giant
Nike.
Speaking of Nike, the company saw about 13% of its total revenue come from China in the past 12 months, according to FactSet. Management lowered its fiscal 2024 sales guidance in December, partly because of weakening consumer demand in China. That’s weighing on analysts’ estimates for this calendar year, with Wall street calling for just over 4% growth, whereas Nike has seen mid-single-digit-percentage growth annually in the past few years, as it has had success versus other brands in selling digitally and expanding its footprint in China. Now, a stronger-than-expected consumer in China could unlock higher sales than currently forecast.
Nike stock, at $103, was barely changed from a $101.90 close Tuesday, just before the China news. It trades at 25 times expected earnings per share for the coming year, 27% above the
S&P 500’s
19.9 times, though it can historically trade at almost double the index’s multiple when the market is more confident in its earnings-per-share growth. Better sales growth—especially in China—could unlock higher profit margins, more share buybacks, more earnings growth, and stock gains.
State Street
is also on the list. The asset manager saw about 11% of its revenue come from China in the past year. Improving markets in China will help revenue for the company. Higher asset prices increases the firm’s assets under management, which increases revenue from management fees. Markets have had a rough past couple of years. First, the S&P 500 and U.S. Treasury bond prices fell in 2022, sending the company’s fee revenue downward. U.S. markets recovered in 2023, but in that year, the Shanghai Composite Index and Hang Seng Index fell 3% and 14%, respectively, contributing to another top-line decline in 2023 fee revenue. State Street investors would like to see a recovery in Chinese markets.
Nike stock is still 19% below a multi-month high, hit in early February 2023. So it, among the others on Evercore’s list, look ready to run.
Write to Jacob Sonenshine at [email protected]
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