While global markets experienced massive selloffs on Tuesday following a US market selloff on Monday, China's markets stabilized with a slightly positive close, a sign that is seen as a positive reading on July CPI data, which was 6.5%; analysts in China mostly believed the number is encouraging and likely have seen a peak already. The Chinese government also stepped up to further boost growth after over one year of monetary tightening; reports point to a better investment environment in the following 12-24 months. Citigroup predicted on Tuesday that the domestic market has at least 20% upside from here, given the fact that strong earnings are maintained while stock prices declined during the panic selloff. In September, the central government also will announce new policies to boost seven new industries for its 12th five-year strategic plan, according to reports. These new industries include renewable energy, energy conservation, next generation information technology, biotechnology, hightech manufacturing, new material, and renewable energy automobiles.
Renewable energy includes solar energy, nuclear energy, wind energy and bioenergy. China will boost the solar energy alone by 30GW by 2020, wind will reach 55GW by 2015. While renewable energy stocks are trading at fractions of their book value and PE below 3 due to the panic selloff of the last few weeks. Earnings are going to be strong and climb in the coming years. Major players in the field include LDK Solar (NYSE:LDK), Suntech (NYSE:STP), Sunpower (SPWRA), First Solar (NASDAQ:FSLR), Yingli (NYSE:YGE), Hanwha Solar (HSOL), JA Solar (NASDAQ:JASO), Canadian Solar (NASDAQ:CSIQ), ReneSola (NYSE:SOL), Trina Solar (NYSE:TSL), Jinko Solar (NYSE:JKS), Q-cell and Sharp. LDK Solar was trading at $5.5 on Tuesday and estimated earnings is going to be around $2.0-2.7 in 2011, so it's really trading at PE of around 2. Compared to some other names in the group, LDK Solar earns three times more than Sunpower ($2 v.s.70c/2011), yet a stock price is trading at one third of Sunpower ($16 on Tuesday). LDK and other solar names such as Hanwha Solar and Suntech also have huge advantages to enter China and Asian markets. Big money managers also could start to buy into Asian names during this selloff according to a new report. With investors losing confidence in Western politics, fund managers seem to favor a stable government environment in China and quick decision making under urgent circumstances. Probablly a US$ decline in value also boost earning power in some Asian ADRs traded in the US.
New information technology will be another major focus in the fivce-year plan. Investment will be mainly placed in developing 3G and 4G networks across the nation. Big players include Cisco (NASDAQ:CSCO), ZTE Telecom and Huawai. Technology such as 100Gbps switch and above will be the key.
New material industry includes new magnetic material, new semiconductor, rare earth, and other yet-to-be-found materials such as super conductors.
The renewable energy automobile industry is a unique industry in China; the country is developing next generation automobiles that can run based on clean energy instead of fossil fuel. Battery will be the key component: China's BYD attracted famous investor Warren Buffett last year as the latter saw great potential in the country.
Disclosure: I am long LDK.
Additional disclosure: Long CSCO, C, YGE, LDK, HSOL, and call/put options.