Yahoo Finance 1 Stock to Buy and 1 to Avoid as the Chinese Market Hits a 5-Year Low
Written by Amy Legate-Wolfe at The Motley Fool Canada
While the Canadian and American markets might be heating up, the market in China continues to sink lower. There are several stock exchanges in China, yet all of them have been falling, with the market now hitting a five-year low.
Why does it matter? The Chinese economy affects Canadians in a variety of ways. So let’s look at what investors should be aware of in the market today, what to avoid, and what to potentially buy for a big opportunity.
What happened?
Fund managers have been moving away from China as it looks as though other emerging markets will outperform. Many were heavily invested in China in the past, seeing it as a major growth opportunity with the expanding middle class.
Over the last 30 years, China has been growing at a fast clip as the manufacturing centre of the world. Yet in the last few years, some sectors are having a harder time than others. A potential rescue package has been reported, but it looks as though the Chinese government plans to provide a level of funding that wouldn’t do much to help the issue. In the words of one analyst, it’s like “cups of water on a wildfire.”
Even so, China still accounts for 30% of global manufacturing output, and 22% of global gross domestic product (GDP) growth. So if investors are careful, they can find those sectors that may not struggle in the near future.
Avoid tech
In the near term, investors should avoid Chinese tech stocks that are likely due to shrink further. There continue to be geopolitical issues between countries, including but not limited to Canada. In fact, this could become even worse in the future should Donald Trump be re-elected back into office.
Therefore, companies such as Alibaba Group Holdings (NYSE:BABA) should be avoided for now. Shares of the company have fallen 43% in the last year alone. As China’s economy looks to fall even further, the company isn’t likely to see sales increase by much. Add in the aforementioned geopolitical issues, and Alibaba stock could be in for an even more difficult time.
Long term there could certainly be a recovery, and Alibaba stock is looking to shake things up in the meantime to gain back investor trust. A new chief executive officer (CEO) looks to move the e-commerce business forward. Management also hopes to make gains with its cloud computing business. And the stock is also looking to split up its business empire. So until the dust settles, it may be best to avoid.
Keep eating
Instead, it might be far better to consider a brand such as Yum China Holdings (NYSE:YUMC). This is the brand operating franchise restaurants across the People’s Republic of China, including KFC, Pizza Hut, and Taco Bell.
Chinese customers apparently still want American brands. The stock continues to create long-term shareholder value, expanding even among inflationary pressures. It has also proven to be an innovative stock, providing a digital ecosystem that remains ahead of the curve.
Yet shares are down 44% in the last year, offering a huge opportunity for investors. After all, the stock only operates in China. It needs sales to rise, sure, but doesn’t experience pressure from geopolitical issues. Therefore, if there is one stock to buy right now, certainly consider Yum stock.
The post 1 Stock to Buy and 1 to Avoid as the Chinese Market Hits a 5-Year Low appeared first on The Motley Fool Canada.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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