During the first half of 2014, there have been doubts surrounding the sustainability of the long-term Chinese growth story. Indeed, a number of China-focused stocks have struggled to outperform the wider index, as they have suffered from weakened market sentiment that has largely been caused by question marks over their long-term sales and strategy. This uncertainty has been heightened by disappointing Chinese data, which has included the country missing its first quarter GDP growth target.
However, things could be improving for China’s future potential. That’s because preliminary data released recently showed that manufacturing activity increased for the first time in 2014, with a level of 50.8 being recorded in June. That is the highest level since November 2013 and, crucially, is above 50, which indicates expansion rather than contraction. Certainly, one positive release is unlikely to change investor perceptions significantly, but it could prove to be the start of an improvement in market sentiment. Here are three stocks that could benefit.
Diageo
A key growth market, China has proved to be a successful place for Diageo (LSE: DGE) (NYSE: DEO.US) to do business thus far. Its premium alcoholic beverages (particularly Scotch whisky) have proved to be very popular and have led to increased investment by the firm in its high-end spirits lines. However, shares in the company have stuttered in 2014 and are currently down 8% year-to-date (the FTSE 100 is up 1% over the same time period). However, improved Chinese PMI figures could signal an upturn in economic activity in the country and lead to improved prospects for Diageo, which remains well-placed to benefit from the long-term Chinese growth story.
HSBC
Despite emerging from the credit crunch in far better shape than many of its rivals, shares in HSBC (LSE: HSBA) (NYSE: HSBC.US) have disappointed somewhat in recent months. Indeed, its focus on China being a key driver of growth in future years seems to have weighed heavily on shares, with them being down 8% year-to-date. However, there is vast potential for business and personal loans in China, as the country seeks to transition from a capital spending-led economy to a consumer-led economy. Although this evolution may not be a smooth one, it could mean significant opportunity for banks such as HSBC that are well-placed to capitalise on an economic upturn.
Unilever
Although many of Unilever’s (LSE: ULVR) products are considered consumer staples, it also has a large stable of consumer discretionary products, such as luxury skin and hair care products. Indeed, with over half of Unilever’s revenue now being generated in emerging markets, a more prosperous China is good news for the company. Although PMI data may not directly equate to an increase in demand for consumer products, it could mean that investor sentiment towards China-focused stocks (such as Unilever) improves and helps to push shares higher.