The winds of change may be sweeping across China’s economic landscape.
On September 24, 2024, the Chinese government introduced its most significant stimulus package since the 2020 pandemic. This bold strategy aims to rekindle economic growth, which has been sluggish in recent years due to a cooling property market and ongoing COVID-19 disruptions.
The stimulus package adopts a comprehensive approach, including both monetary and fiscal measures. The People’s Bank of China (PBOC) has reduced the benchmark seven-day reverse repo rate from 1.7% to 1.5%. This key interest rate is a short-term loan rate used by the central bank to enhance liquidity and influence other interest rates in the banking system.
Additionally, the central bank has cut the reserve requirement ratio (RRR) by 0.5%, injecting an estimated 1 trillion yuan (US$142 billion) of long-term liquidity into the financial market. The RRR determines the amount of cash banks must hold in reserve, and reducing it frees up more funds for lending.
To boost the housing market, China has lowered the minimum down payment for second homes from 25% to 15% nationwide. Moreover, the government is introducing measures to increase liquidity, making it easier for funds, insurers, and brokers to access capital for stock purchases. Banks will also have access to loans to support stock buybacks by listed companies. These initiatives aim to restore investor confidence amid ongoing market volatility.
The Singapore Exchange (SGX) is abuzz with anticipation as several Singapore-listed companies with significant exposure to China could benefit from this economic revival. Let’s take a closer look at four well-diversified companies from different sectors poised to capitalize on these developments.
#1 Jardine Matheson (SGX: J36)
Founded in 1832, Jardine Matheson boasts a long and successful history of navigating China’s intricate business landscape. With a diversified portfolio encompassing retail, motors, and property, the company is a crucial bridge between Singaporean investors and the vast Chinese consumer market.
Jardine Matheson’s businesses operate in multiple sectors across key markets in China and Southeast Asia. In terms of underlying profit breakdown for 2023, China accounted for 37% of its earnings.
Source: Jardine Matheson 2023 Annual Report
The conglomerate’s involvement in the property sector, particularly through its subsidiary Hongkong Land (SGX: H78), could also benefit from potential market stabilisation efforts.
Investors seeking exposure to China’s revitalised consumer market should consider Jardine Matheson. Its long-standing presence in China, coupled with its diversified portfolio, positions it well to capitalise on any economic upswing.
#2 Wilmar International (SGX: F34)
Wilmar International, one of the world’s largest palm oil refiners, is a key player in China’s food industry. The company’s vast network of oil palm plantations and processing facilities ensures a steady supply of essential commodities like palm oil, edible oils, and sugar to the Chinese market.
In China, among other things, Wilmar is the largest edible oils refiner and leading producer of branded consumer pack oils, rice and flour.
Last year, the mainland brought in more than half of Wilmar’s total revenue of US$67.2 billion, showcasing how significant the country is for its business.
Source: Wilmar International 2023 Annual Report
China’s latest stimulus package that revitalises the domestic economy presents a significant opportunity for Wilmar.
As consumer incomes rise, demand for food products will likely increase, driving demand for Wilmar’s commodities. Additionally, the company’s integrated operations, from plantation to processing, provide it with a competitive cost and supply chain efficiency advantage.
Investors seeking exposure to China’s growing food industry and the broader consumer market should consider Wilmar. The company’s strong market position and diversified product portfolio make it an investment option worth researching further into.
#3 DBS Group Holdings (SGX: D05)
DBS Group Holdings, Southeast Asia’s largest bank, is another Singapore company primed to benefit from China’s economic revival. With a significant presence in North Asia, particularly in Hong Kong and China, DBS is well-positioned to capitalise on increased economic activity.
The stimulus package’s focus on increasing financial liquidity and potential property market stabilisation bode well for DBS. A revitalised property market could increase demand for mortgage loans, further boosting DBS’ profitability.
DBS’s strong financial standing and established presence in China make it an attractive option for investors seeking exposure to the Chinese economic recovery through the financial sector. In its 2023 annual report, DBS highlighted its contributions in China:
“We continued to make important strides in China. Since its borders reopened in 2023, we have seen an uptick in China connectivity with Singapore and other ASEAN countries. To capture business opportunities from China, we launched a foreign direct investment desk in Singapore. Our “China plus one” strategy, supporting companies wanting to diversify their supply chains and operations, had good traction. … . In early 2024, we upped our stake in Shenzhen Rural Commercial Bank (SRCB) from 13% to 16.69%. SRCB is a high-returns bank, in which we are the largest shareholder, and gives us a good footprint in the GBA [Greater Bay Area]”.
Furthermore, DBS has been paying sustainable dividends over the years, yet another attractive factor for income seekers.
Source: DBS 2Q 2024 Earnings Presentation
Read Also: DBS (D05); UOB (U11); OCBC (O39): Singapore Banks Dividend Yield And Share Price Performance
#4 CapitaLand China Trust (SGX: AU8U)
CapitaLand China Trust (CLCT) is Singapore’s largest China-focused real estate investment trust (REIT).
With a focus on high-quality commercial properties, including retail, business parks, and logistics parks, in key Chinese cities, the REIT stands to benefit significantly from the country’s potential increased economic growth.
Source: CapitaLand China Trust 2023 Annual Report
China’s central bank’s move to cut the RRR could lead to a rebound in property prices and rental rates. This could benefit CLCT through higher rental income and property valuations. Additionally, the company’s focus on high-quality properties and strategic locations can provide a degree of resilience in a volatile market.
For investors seeking exposure to China’s property market recovery, CLCT could be a compelling option. The company’s diversified portfolio and focus on prime assets position it well to capitalise on the potential upswing.
Read Also: How The US Federal Reserve Interest Rate Decisions Impact Singapore REITs (S-REITS)
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