Beat China’s economic slowdown with these 6 stocks

Defence rather than offense is an important element of a solid portfolio.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Given how Australian investors love to own resource stocks there must be a lot of worried investors out there right now. Increased murmurings about the state of the Chinese economy and an iron ore price which is now officially in bear market territory – iron ore has fallen around 30% to under $100 per tonne – has left many resource stocks struggling.

Despite the potential for a fallout from a slowing Chinese economy, there’s no need for investors to move to cash and risk missing out on a market which could very well keep on rising. Rather careful portfolio positioning can be used to minimise downside risks.

 

1)      Be a contrarian. While a slowdown may be occurring that doesn’t mean it isn’t already factored into the share price of certain China-exposed stocks. For example Fortescue Metals Group Limited (ASX: FMG) and Arrium Ltd (ASX: ARI) are down 22% and 47% respectively this calendar year. While the iron ore price may briefly head lower, assuming the average price remains above each firm’s breakeven point then these stocks could eventually bounce back to reflect their continued profitability.

 

2)      Buy domestically focussed blue chips. Certain stocks such as Woolworths Limited (ASX: WOW) and Telstra Corporation Ltd (ASX: TLS) have defensive streams of earnings and should continue to provide solid earnings to shareholders regardless of global macro events. While capital gains may be limited, capital losses should be too.

 

3)      Small cap, niche players can do well no matter what! While higher volatility is common amongst smaller stocks, the underlying businesses of some companies can avoid a slowdown if carefully selected by investors. Lifehealthcare Group Ltd (ASX: LHC) and Capitol Health Ltd (ASX: CAJ) are two possible examples.

 

Australia’s reliance and dependence on China as a major trading partner shouldn’t be dismissed, however investors also need to keep in perspective that many domestically focussed companies should perform reasonably well regardless of China’s growth rate.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »