BYD-Aktie & Co: Look at China – Consume more!

shares in this article

by Jörg Billina, €uro on Sunday

The e-car manufacturer BYD is still hardly known in this country. In just a few years, however, Build your Dreams promises to become a global player. Tesla, VW, Ford and Toyota are becoming a strong competitor. The company, based in the southern Shenzhen region, sold 641,350 e-cars in the first six months of the current year – this corresponds to an increase of 300 percent compared to the same period last year. Tesla, on the other hand, only sold 564,743 models worldwide in the same period and was pushed from first to second place.

So far, BYD management has focused almost exclusively on the domestic market. In the first five months of this year, the company only exported 3,300 vehicles. In the medium term, however, the aim is to gain market share in Australia, the USA, Europe and Latin America. The advantage of BYD is the price. The cheapest Tesla model costs the equivalent of $35,000, while buyers only have to pay $15,000 for the cheapest BYD model, according to the Financial Times. Another plus: BYD also produces e-batteries, electric motors and chips for cars. Broken supply chains therefore harm the company less than the competition. Vertical integration also makes it easier for management to control costs.

Stock market legends Warren Buffett and Charles Munger recognized the growth prospects early on. Your investment holding company Berkshire Hathaway joined BYD in 2008 and, according to its own statements, held a 7.7 percent stake in February 2022. Recently, rumors surfaced that Berkshire Hathaway was planning a partial or full exit. The share then came under severe pressure. So far, however, this has not been commented on or confirmed by Berkshire Hathaway. Despite the recent pullback, BYD shares are still up 31 percent over the past three months, and investors have returned 540 percent over the past three years.

Strong incentives

The Chinese state is not involved in BYD, but is making a decisive contribution to Chinese consumers increasing demand for e-vehicles from BYD, but also from NIO, Xpeng and Geely. The complete suspension of motor vehicle tax into the coming year will create significant incentives to buy, writes the rating agency Fitch in a comment. Local authorities like the one in Shenzen are also promoting the purchase of e-cars with bonuses of up to 3,300 euros per vehicle. For the current year, experts are therefore anticipating a significant increase in sales of e-vehicles compared to the previous year.

leeway at the monetary policy

However, China’s government is not only promoting individual sectors, but is generally stimulating the economy. This encourages investors to get involved, especially since the People’s Bank of China, with an inflation rate of 2.5 percent recently, can operate a loose monetary policy in contrast to the US Federal Reserve. In the past three months, the CSI 300 – the index includes companies listed in both Shenzhen and Shanghai – has gained 24 percent. The Nasdaq Golden Dragon China Index rose 8 percent. The stock market barometer includes Chinese companies listed in the US.

In addition to financial aid for small and medium-sized companies, Beijing is investing in the expansion of the infrastructure and in particular in the 5G mobile standard. According to “People’s Daily Online”, more than 1.6 million 5G stations have already been set up in China. By 2025, a total of 3.6 million such stations should eliminate the digital deficits that still exist in rural areas or advance the technological transformation of the Chinese economy. China Telecom and China Mobile are the main beneficiaries of the initiative. The shares of the two companies have increased by 23 and 20 percent respectively in the past three months.

A lot of money also flows into green projects. By 2025, renewable energies should contribute 50 percent to all electricity generation. By 2060, China wants to achieve climate neutrality. In order to realize the energy transition, the expansion of energy storage systems is also being pushed. This results in lucrative orders for companies such as Pylon Technologies or Guangzhou Great Power Energy.

With the package of measures, Beijing wants to ensure that the growth target of 5.5 percent set for 2022 will actually be achieved and that the momentum will remain high in the coming years. However, there are doubts about this. The restrictions ordered by the government to contain the corona virus are slowing down the upswing. It is estimated that over 100 million Chinese are currently in partial or full lockdown. Regulations of the kind that now apply in Europe have so far been unimaginable for China’s leadership. The vaccination rate is still too low. In Shanghai, only 35 percent of all 60-year-olds are boosted. In the second quarter, gross domestic product is therefore likely to have increased by just one percent. For 2022, the World Bank assumes an increase in overall economic output of only 4.3 percent.

Allow no criticism

President Xi Jinping wants to avoid rising death tolls ahead of the 20th National Congress of the Communist Party. In November he wants to be confirmed by the delegates again as General Secretary and President. He should succeed in this, but China’s number 1 wants to take the wind out of the sails of possible internal criticism from the closest circle of leaders on the prescribed restrictions. It cannot be ruled out that state support for the economy will be intensified again.

However, as long as Beijing does not change its strict pandemic policy, the risks for investors remain high. You still have to be prepared for violent fluctuations. On the other hand, favorable valuations are tempting. The 720 companies included in the iShares MSCI China ETF have an average price-earnings ratio of just twelve. Regulatory pressures on tech companies also seem to be easing. According to “Bloomberg News”, China’s central bank is now willing to recognize entrepreneur Jack Ma’s Ant Financial group as a financial holding company. This would eliminate an important obstacle on the way to listing on the stock exchange. Two years ago, the government had prevented a listing, which unsettled investors and the sent prices plummeting.

INVESTOR INFO

China Stock ETF

China equity fund

In recent years, the Fidelity China Focus Fund, worth more than 2.5 billion euros, has not been able to convince. In three years it has increased by just ten percent. The fund has therefore only been given a grade of 4. But in the current year, the fund managed by managers Jing Ning and Alice Li is overtaking the competition with a plus of more than twelve percent. Baidu and Lenovo are among the top values.
ISIN: LU0173614495

Equity funds Asia

With Threadneedle Asian Equity Income, investors have a broadly diversified presence in high-growth markets. Fund manager George Gosden weighted Chinese stocks at 14 percent. He has spread the remaining funds across Australian, Korean, Taiwanese, Thai and Indian stocks. Taiwan Semiconductor and Samsung Electronics are heavily weighted. The fund has grown 50 percent in five years.
ISIN: LU0061477393

____________________________________

Image sources: testing / Shutterstock.com