JPMorgan says China's power crisis could blow over soon — and these 3 stocks could pop

Published Tue, Oct 19 20219:13 PM EDT

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

JPMorgan analysts say China's power crunch could ease as soon as November, and picked three energy-related stocks that may bounce back. A shortage of coal and high commodity prices prompted abrupt power cuts at many factories in late September. Major investment banks trimmed their full-year forecast for China's GDP partly on expectations the shutdown would hurt growth. "New coal production capacity onshore is kicking in now and deliveries will likely catch up in November, supporting more balanced demand and supply dynamics in 2022,“ JPMorgan analysts said in a note on Oct. 9. Here are some of the bank's top China stock picks for playing the trend. All are rated "overweight" which means the analysts expect the stocks to outperform others in their coverage over the next six to 12 months. China Resources Power Hong Kong-listed China Resources Power is JPMorgan's favorite power company for three reasons. It can likely grow its renewable power capacity to 60% from 40% in five years. The company is "the biggest beneficiary" of a likely state directive to increase the price of electricity for industrial users, since "market-based electricity" represents more than two-thirds of the company's power sales. CR Power can withstand higher coal prices better than its peers. Cosco Shipping Like other container and bulk shipping stocks, shares of Cosco Shipping sold off in the wake of China's power crunch — but the JPMorgan analysts think the sell-off is overdone. "For container shipping, end demand is driven by US and European consumer demand while the power cuts in China are not going to affect the demand side of the equation," the analysts said. Among other factors, global stimulus from the U.S. and other countries to support infrastructure development will help bulk shipping companies like Cosco, they said. Shenzhen Inovance China's factories have found themselves under rising pressure from production delays, rising raw materials costs and now, to an extent, power shortages, the analysts said. In this environment, one of their investment calls is to bet on automation in manufacturing — particularly through companies like Shenzhen Inovance , which manufactures products such as sensors for industrial automation, electric vehicle motors and assembly robots. "We are fundamentally positive on China's industrial automation (IA) sector,“ the analysts wrote. "The manufacturing sector enjoys policy support for industrial upgrades and automation. The policy tailwind may help offset certain cyclical headwinds." — CNBC's Michael Bloom contributed to this report.

Barges travel past the Wangting Power Plant in Wangting, Jiangsu province, China, on Thursday, Sept. 30, 2021.

Qilai Shen | Bloomberg | Getty Images

JPMorgan analysts say China's power crunch could ease as soon as November, and picked three energy-related stocks that may bounce back.