Too many FTSE 100 stocks are reliant on China formy liking. The reason I dont like that is because China is slowing and I seemore deceleration to come.
Just look at the impact declining Chinese demand has had on mining giants BHP Billiton and Rio Tinto. Or oilmajors BP and Royal Dutch Shell. Not to forgetHSBC HoldingsandStandard Chartered, drinks giantDiageoand fashion chainBurberry Group. All have endured a tough few years and China is largely to blame.
China needs another revolution to reverse the decline: a revolution in corporate governance, market liberalisation, and individual freedom. That will take time. As willthe demographic windfall from belatedly scrapping the one-child policy. These days Im more drawn to stocks that are exposed to the (relatively) booming domestic UK market. Stocks like these three.
Bank On Lloyds
While HSBC generates around 75%of its profits from Asia and Standard Chartered around 90%,Lloyds Banking Group (LSE: LLOY) hasnothing like that exposure. It is a domestic rather than a global bank. There are cons as well as pros to that, of course nobody expects Lloyds to go on a tear, given the mature UK banking sector. And while UK growth is leadingthe G7, that wontlast forever.
If interest rates start rising next year that will improve margins but at the expense of rising bad debts from overstretched borrowers. The disastrous PPI mis-selling scandal, which has hit Lloydsharder than anybody, still isnt over. Lloyds stilllooks like a great dividend stock, forecast to deliver 27% of the entire dividend growth on the FTSE 100 next year, as todays 1% yield multiplies to5% or 6%. Next Springsretail flotation will finally clear the government out of the picture too. Lloyds has a steady future ahead of it, and there is littleChina can do about that.
Right Royal Investment
Royal Mail Group (LSE: RMG) has lost direction since launch and its share price is down 17% in the last two years. The stock is slowly finding its level afterits over-hyped debut. Trading at 10.55 times earnings, it doesnt look overvalued today. Its 4.65%dividend yield looks solid and is nicely covered two times.
RMGsEuropean parcelsbusiness generates the most excitement, while intense competition in UK parcels, international and letters is squeezing revenues. Ambitious delivery schemes such as Amazon Prime and the new Argos UK-wide same-day delivery servicewill up the ante. But the cash is flowing and management has scope to cut costs. Royal Mail should delivera steady, if lessthan spectacular, future.
UK-focused utility SSE (LSE: SSE) is enjoying a fresh surge of energy, itsshare price up 8% in the last monthAfter bullish management comments about the benefits of itshigh renewable energy output andrelatively good performance in energy supply.
This is good news for investors in the FTSE 100 dividend hero whose juicy yield, currently 5.82%, may come under threat if it continues to shedcustomers. Trading at 12.53 times earnings, at least it isnt overpriced. Most investors see this as an income stock but the share price is still up 40% over five years, while theFTSE 100 has been flat over the same period. SSE should remain a sparky income play,even if China blows a fuse.
There areplenty more top UKstockson the FTSE 100 if you know where to look.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.