2 Large-Cap Stocks That Will Benefit From China’s COVID Reopening

December 6, 2022

Shanghai eased some of its COVID restrictions, joining other top-tier cities in China such as Beijing, Shenzhen and Guangzhou, as the government accelerates a shift towards reopening of the economy.

Restrictions are also being rolled back in Zhenzhou city, home to Apple Inc’s (NASDAQ: AAPL) largest manufacturing site in China.

The market is moving ahead as signs that the Chinese government is moving away from its COVID zero policy.

Chinese stocks rallied in response to the development.

China’s Shanghai Composite Stock Exchange was up by 1.8% on Monday (5 December) while Hong Kong’s Hang Seng Index jumped by 4.3%.

Here are two stocks that I believe will benefit from China’s reopening.

1. Apple

Over the last year, Apple’s share price has been on a downtrend. It share price is down by 8.1% from 12 months ago.

It year-to-date performance is also in the red as the iPhone maker’s shares have fallen by 16.8%.

One of the main reasons for the underperformance was the US Federal Reserve’s (Fed) interest rate hikes.

However, Apple also faced another uncertainty due to its exposure to China, especially with its assembly plant.

The COVID-Zero policy in China has led to disruptions to production, which caused shortages in its iPhone production line-up.

Recent news reports said that Apple could see a shortage of iPhone 14 Pro models of around 6 million, which could result in a decline in revenue of US$6 billion for its Q1 FY2023 period.

I have suggested investors take advantage of market weakness to buy into the largest company in the world (by market capitalisation) in my previous article.

There were a lot of positive takeaways from Apple’s latest results earnings but one of the key downside risks that I highlighted was China.

While the fragile US-China relations continue to be a risk to watch out for, the reopening in China puts Apple in a strong position to meet the strong demand for its iPhone 14 Pro lineups.

2. NIO

China’s leading premium smart electric vehicle (EV) maker, NIO Inc (NYSE: NIO) (SEHK: 9866) (SGX: NIO), will be another winner from the reopening of China’s economy.

This will ensure the production ramp-up will remain on track to meet management’s guidance.

As mentioned in my article on NIO recently, the management at NIO is focused on achieving its target to turn profitable by 2024.

Among one of the key factors that will affect its trajectory is the production capacity of NIO.

One of the key metrics is the production and delivery of vehicles, which is expected to reach 20k deliveries per month by 2023 and there should be further growth to 30k deliveries per month by the second half of 2023.

The reopening in China will help to address some of the shortages of raw materials in the industry.

Given China is one of the key markets for the EV supply chain, NIO is in a good position to tap into the recovery of the reopening of the Chinese market.

As NIO is targeting the premium segment, the company is also less affected by rising costs.

Rising nationalism in China could also benefit local brands such as NIO as compared to US rivals like Tesla Inc (NASDAQ: TSLA).

More Chinese companies to benefit from China reopening

The market is moving ahead in anticipation of the shift away from the COVID-Zero policy in China.

However, I believe that investors should be more cautious in the current volatile market and uncertain macroenvironment.

In my view, Apple and NIO, which are leaders in their respective industry, could offer substantial upside and are less exposed to the downside risks.

Apple continues to dominate in the smartphone industry and its growing services revenue will help to cushion the slowing demand for new smartphones.

Meanwhile, NIO is the leading premium EV player in China and will benefit from China’s ambition for EVs to make up 40% of new cars sold by 2030.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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