Credit Suisse picks the Chinese stocks with the most pricing power in an age of inflation

Published Mon, Jun 21 20217:30 PM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

As inflation rises globally, Credit Suisse has picked a handful of stocks that its in-house model indicates can maintain profitability even as prices climb. The gold, battery materials and software industries have the highest pricing power in China, while property and industrials had the lowest, the analysts said in a June 14 report. The analysts weighed factors like labor costs and pressure from raw materials costs. Here's the breakdown of the Credit Suisse analysts' top picks for China, based on three different screens: Global stocks with low volatility Credit Suisse's first screen looked at stocks from around the world that the model predicts will have low price volatility and a long-term competitive advantage. There were only two stocks listed in mainland China or Hong Kong. Shenzhen-listed China Resources Sanjiu Medical & Pharmaceutical is a subsidiary of state-owned conglomerate China Resources. The company produces and sells its own medicines, including those for treating colds. Hong Kong-listed Fu Shou Yuan International does business in the death care services industry, operating cemeteries and funeral homes in 45 cities across China. The company reported a 3% increase in net profit last year to 757.3 million yuan ($118.3 million). Narrowing down by industry In this screen, Credit Suisse analysts first selected industries with pricing advantages. Then they picked companies with high pricing power. The study of companies from around the world yielded only one Chinese stock with an "outperform" rating: Tianqi Lithium , which mines and produces the key metal for electric vehicle batteries. Despite that optimistic outlook, Tianqi Lithium has operated at a loss for the last two years, after returning a profit to shareholders in 2018. The company reported net loss to shareholders of 247.9 million yuan in the first quarter of 2021, half of a 500.3 million loss a year ago. Screening by region The Credit Suisse analysts then applied the same industry and company screen to the region of Asia alone. These are "companies which our analysts assess to have the strongest pricing power within sectors with strong or very strong pricing power," the report said. Electric car start-ups Nio and Xpeng were among the few Chinese companies that appeared on the list. Both companies operate primarily in China, although they are listed in the U.S. and have begun to enter the Norwegian market. The screen did not mention Li Auto, another major Chinese electric car start-up listed in the U.S. Yonyou Network Technology was another Chinese stock that made the list. The company sells enterprise software for managing supply chains, human resources and other business operations. In addition to China, Yonyou has operations in Singapore and other countries in the region. — CNBC's Michael Bloom contributed to this report.

Employees assemble lithium-ion batteries at a factory on November 14, 2020 in Huaibei, Anhui Province of China.

Wan Shanchao | Visual China Group | Getty Images

As inflation rises globally, Credit Suisse has picked a handful of stocks that its in-house model indicates can maintain profitability even as prices climb.

The gold, battery materials and software industries have the highest pricing power in China, while property and industrials had the lowest, the analysts said in a June 14 report.

The analysts weighed factors like labor costs and pressure from raw materials costs.

Here's the breakdown of the Credit Suisse analysts' top picks for China, based on three different screens: