China’s mega-corporations are becoming more mega.
And once again, their state-owned banks account for half of the top 10 biggest companies in the world, based on the findings in the latest Forbes Global 2000, released on Wednesday. No country has more bank giants than China. Is it any wonder, then, that it is difficult to punish them with tariffs when all Beijing has to do is open the spigot, only marginally fearless of its debt burden?
The number of Chinese companies on the Forbes Global 2000 hit a record 309 this year. That includes Hong Kong. Last year, China had 291 companies. In 2017, China accounted for 262 companies.
Chinese banks are a big part of its growth story. The banks dominate most China exchange traded funds. The iShares FTSE China (FXI), the highest volume China trade out there, is absolutely loaded with them. If you want to own China’s best banks, you buy FXI and 46% of your money is going into all of them all: The Industrial and Commercial Bank of China (No. 1 on the Global 2000); China Construction Bank (No. 3); Agriculture Bank (No. 4).
But what if you did a random walk through the Forbes list of China’s biggest corporations and picked all of the non-financials on the China list that make up the top 100 corporations in the world? How would those individual stock picks have fared this year, or over the last 12 months, or over a longer holding period?
Let’s put $1,000 in each starting in January. Here’s how much money we’ve made (or lost) as of May 15.
PetroChina (PTR): -$55.60
Last year, China’s second largest oil producer was considered the 30th largest corporation. It’s now at 22. Its shares are down 5.56% year-to-date (YTD), so it is clearly underperforming the CSI-300 and the MSCI China indexes. Over the last 12 months, PetroChina is even worse, down 24.17%. Five years? You’ve thrown half your money away.
Sinopec (SHI): +$25
The China Petroleum & Chemical Corporation has slipped from 27 to 35 on the Global 2000. If you invested $1,000 in Sinopec, you’ve got an extra $25 sitting in your Schwab account. But that’s not enough to make up for the 34% loss over the last 12 months. Buy-and-holders get rewarded: they’re up 78.2% in five years, clobbering both benchmarks in dollar terms.
Alibaba (BABA): +$300
Alibaba is the B2B version of Amazon. It is the 59th largest company in the world, up from 81 in 2018.
BABA shares are up 27.56% this year, beating the indexes. Alibaba made up from last year’s bear market, which has Alibaba down 11.07% in 12 months. In the five years, Alibaba shares returned 89.6% in dollar terms.
Tencent Holdings (HK: 0700): +$24.33
Tencent is another one of China’s premier tech companies. They are the creators and owners of WeChat, the China messaging app. They also do e-commerce and gaming. Tencent is up 19.11% this year in Hong Kong dollars, so that’s HKD191.10…or just $24.34 after exchanging the currencies. Tencent is down 6% in 12 months, close to both indexes, but over the long haul is where investors cashed in on this China tech giant: up 258%.
China State Construction Engineering Corp (SH: 601668): $2.62
This is the largest construction company in the world. Overall, China State Construction is the 80th largest corporation, up from 84 last year. Like PetroChina and Sinopec, it is a state-owned enterprise.
The stock is up just 1.7% YTD, which is around 11 Chinese yuan. In dollars, you made a $2.62.
Over the last year, the company is down 6.45%, but that’s better than CSI-300 and MSCI China, both down double digits. Over a five-year period, investors saw a 170.2% return, or around $247 given current exchange rates.
China Evergrande Motor Group (HK: 3333): -$4.59
This is sort of your typical Chinese conglomerate. Evergrande has its hand in everything from real estate to healthcare to…cars. The China Evergrande Motor Group is the 94th largest company you’ve never heard of. Last year it was 127.
Evergrande invests in electric vehicles, but are not as well known as BYD, which garnered headlines thanks to early investments by Warren Buffet. Evergrande grows by acquiring know-how from European automakers.
The stock is down 3.6% this year; 10.67% over 12 months, and a big win for long-termers. China Evergrande Auto stocks are up 574% in five years, or 5,740 Hong Kong dollars ($731).
SAIC Motor (SH: 600104): +$2.71
SAIC Motor, another car company on the list. It comes in at No. 100, dropping 20 positions from the 2018 Global 2000. China has dozens of auto and parts makers, but oversupply is not a problem because many provinces that house these companies want to keep them firing on all six cylinders. Subsidies help keep them running. SAIC is the largest state-owned car company and the No. 2 Chinese car company after Geely, which is private.
Geely is ranked No. 647 on the Global 2000, up from 683 in 2018. Sales and other factors have it ranked below SAIC Motor.
Investors in SAIC shares saw their $1,000 earn them 18.60 renminbi, which is a whopping $2.71 after the exchange.
SAIC has yet to recover from last year’s China bear market. It’s down 26.56% in 12 months. Over five years, SAIC has returned 80%, or around $116.
China’s Top 10 vs Benchmark
Investments in the seven non-financial China companies on the Forbes Global 2000 returned around $295. PetroChina was the biggest drag, and Alibaba saved them all. A weaker renminbi also hurt A-shares investors when selling them for dollars.
A $1,000 investment in BlackRock’s iShares MSCI China (MCHI) ETF would have returned $122.
Gerardo Zamorano, a fund manager for Brandes in San Diego is underweight China because of trade tensions and a raging bull market this year. So what if they have the world’s biggest corporations, and growing.
“I don’t think stocks there are attractively priced,” he says. Though maybe that will change now that President Trump has rearmed the trade war.
“People buy China on policy,” says Zamorano. “Everyone is either counting on more China stimulus or the end of the trade war.”