Water Plays on China

12/15/2015 10:00 am EST

Focus: STOCKS

Stephen Leeb

Founder and Research Chairman, Leeb Group

If water is a big deal for America, it looms equally large—or larger—elsewhere, observes Stephen Leeb, editor of The Complete Investor.

China has made big strides in getting water to its population. Over the past seven years the percentage of Chinese with access to clean water has risen from about 90% to about 96%.

This is considerably higher than levels for the world as a whole—or for other middle-income countries—and is only around 2 percentage points behind the US.

But with its less than generous water endowment, China can’t afford to tolerate water leaks and needs to keep expanding its wastewater treatment.

It takes a lot more effort to make those last few gains to get from the mid-90s level to 99-100% than to improve from lower levels, meaning China will need to continue to spend heavily on water.

The two stocks we feature here let you play this sure trend in the world’s second-largest (and by some measures largest) economy and both offer exceptional upside potential.

And if you worry that China still isn’t fully transparent, the IMF’s recent move to designate China’s yuan as an SDR currency has given Chinese stocks a less risky flavor.

Beijing Enterprises (BJWTF) has the greater potential of the two stocks and exemplifies the success of private companies in powering China’s growth.

It’s active throughout mainland China in nearly all facets of water, from sewerage to construction to wastewater clean up and should be able to maintain better than 20% growth.

The stock trades within a few percentage points of its all-time high and sharply outperformed the Chinese market during the summer market swoon.

Guangdong Investment (GGDVF) distributes water within China’s largest province, Guangdong. The company is more diversified than Beijing Enterprises because of stakes in property development, hotels, and department stores.

While solid double-digit growth is likely for the next five years, those non-water areas, though a relatively small part of overall operations, still make Guangdong Investment more cyclical than Beijing Enterprises.

Nonetheless, it offers another excellent way to participate in China’s water economy.

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