The 50 Stocks Goldman Thinks Will Profit From China’s “Common Prosperity” Push

The 50 Stocks Goldman Thinks Will Profit From China’s “Common Prosperity” Push
Reda Farran, CFA

over 2 years ago4 mins

  • China's common prosperity campaign, which prioritizes economic equality over economic growth, is gaining more and more traction.

  • And Goldman thinks it’ll lead to four structural shifts: mass but unique consumption, hardware technology and manufacturing upgrading, large investments in green energy, and a bigger role for state-owned enterprises.

  • You can benefit from these trends by investing in the 50 stocks Goldman Sachs has picked, either picking and choosing or investing in them as a basket.

China's common prosperity campaign, which prioritizes economic equality over economic growth, is gaining more and more traction.

And Goldman thinks it’ll lead to four structural shifts: mass but unique consumption, hardware technology and manufacturing upgrading, large investments in green energy, and a bigger role for state-owned enterprises.

You can benefit from these trends by investing in the 50 stocks Goldman Sachs has picked, either picking and choosing or investing in them as a basket.

Mentioned in story

A decades-old debate in China over whether the government should prioritize economic growth or economic equality – known in the country as “common prosperity” – has been swinging in favor of the latter recently. Enter Goldman Sachs: the investment bank has looked into exactly how that drive will reshape the Chinese economy, as well as the 50 stocks you could invest in to benefit when it does.

How will common prosperity change China’s economy?

1. Mass but selective spending

Like most countries, there’s a growing gap between the haves and the have-nots in China. This divide is mainly along geographical lines, with the income disparity between those living in urban and rural areas widening in recent years. In fact, around 600 million people – mostly in rural areas – make less than $150 a month in China. That’s more than 40% of the population.

Common prosperity will involve narrowing the income gap between low-earners and the ultra-rich by helping those living in rural areas move up the income ladder. And as they do that, they’ll have a lot more money to spend selectively: on household appliances, cars, apparel, services, and more. Higher demand and spending on these items stand to benefit the companies that manufacture and offer them.

2. Tech and manufacturing upgrades

Prosperity means rising economic output, and that’s heavily dependent on China’s ability to grow its economy in a high-quality, efficient, and sustainable manner.

So expect lots of investment into hardware technology and manufacturing upgrades. What’s more, the government wants to expand its own internal production capabilities for key technologies like semiconductors, electric vehicles (EVs), commercial aircraft, and more – all in the interest of national security, self-sufficiency, and global competitiveness. So it follows that companies operating in these industries and related supply chains stand to benefit.

3. Major investments in green energy

Energy security is another necessity for sustainable growth. Just look at what happened in China recently: widespread energy shortages pushed factories to cut production and, in turn, dented manufacturing activity. That was partly why China’s economy grew at its slowest pace in a year last quarter.

The country is the largest energy consumer in the world and is heavily dependent on imports for its energy needs. But as part of its common prosperity push, China is looking to reduce its reliance on energy imports, as well as lower pollution in the country. That’s expected to usher in trillions of dollars worth of investments into renewable energy, hydrogen power, EV infrastructure, battery technology, and more. So again, companies operating in these industries and related supply chains are set to do well out of the move.

4. A bigger role for state-owned enterprises

The private sector has taken the brunt of China’s widespread government crackdown on some of the country’s fastest-growing sectors – not surprising given that the sector holds a dominant position in the digital economy and other socially important sectors.

But President Xi has explicitly said that state ownership will be promoted to drive common prosperity. That suggests state-owned enterprises – businesses significantly controlled by the government – will play a big role in driving growth and executing policy, especially in areas that might be deemed as strategically or socially important by Chinese policymakers. And since many state-owned enterprises have publicly traded shares, this trend could be turned into an investment opportunity too.

What’s the opportunity here?

Below you can see the 50 stocks Goldman’s picked out to benefit from the above’s four structural shifts:

Source: Goldman Sachs
Source: Goldman Sachs

The 50 companies have a combined market capitalization of $1 trillion, and they’re forecasted to grow profits at a compound annual growth rate of 27% in the next two years. And according to Goldman Sachs, the stocks have so far been relatively insulated from regulation risk and China’s troubled property sector, while also outperforming the wider Chinese stock market by around 10% this year.

There are two ways you can use this list. You could use it to find stocks to do more research on and, if you like what you see, invest in. Alternatively, you could invest an equal amount into each of the 50 stocks to form a basket of Chinese stocks, replacing any ETFs you hold that passively track the Chinese stock market.

By doing the latter, you’ll gain diversified exposure to the Chinese stock market just as you would with an ETF, while selectively favoring the stocks set to do well out of the government’s common prosperity campaign. Investing aligned with long-term policy goals has, after all, historically been rewarding in China…

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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