There is a lot of interesting news out today, but none more so interesting than China abolishing its "One Child Policy" and also reversing course on its labor camps which are supposed to reform criminals. The labor camps issue is to appease international critics but the change in the family planning policy will have an economic impact in real terms as citizens in the country now create larger families. The policy has been plagued for some time as families abandon newly born female babies so as to try again for a male to carry on the family name and help in the family businesses. This has caused unwanted outcomes in the country and led to more males than females in a significant way. One can find many articles covering the marriage issue in China and how hard brides are to come by in the country - especially in certain provinces.
Long-term this is going to be good news for the world's second largest economy, and largest country by population as a higher population growth rate should lead to greater economic growth.
Chart of the Day:
This ten year chart of the Shanghai Composite shows the Chinese bubble building and then deflating. Since 2009 the market has been in a well defined downtrend, but with the latest economic reforms it would appear to us that the country's leaders are taking the restraints off of the economy and putting the pedal to the metal. This might be the bottoming of the market in China and could lead to some nice gains over the next 12-18 months.
We have economic news today and it is as follows:
- Empire Manufacturing (8:30 a.m. EST): Est: 4.3 Actual: -2.2
- Export Prices - Ex Ag (8:30 a.m. EST): Est: N/A Actual: -0.4%
- Import Prices - Ex Oil (8:30 a.m. EST): Est: N/A Actual: 0.0%
- Industrial Production (9:15 a.m. EST): Est: 0.1% Actual: -0.1%
- Capacity Utilization (9:15 a.m. EST): Est: 78.3% Actual: 78.1%
- Wholesale Inventories (10:00 a.m. EST): Est: 0.3%
Asian markets finished higher today:
- All Ordinaries -- up 0.86%
- Shanghai Composite -- up 1.68%
- Nikkei 225 -- up 1.95%
- NZSE 50 -- down 0.27%
- Seoul Composite -- up 1.94%
In Europe, markets are trading higher this morning:
- CAC 40 -- up 0.18%
- DAX -- up 0.25%
- FTSE 100 -- up 0.38%
- OSE -- up 0.32%
Plays on China
There are two names which always interest us when we look at growing consumer bases in developing countries, Proctor & Gamble (PG) and Colgate Palmolive (CL). Proctor & Gamble has in our opinion the better stable of brands, and a stable which is much more diverse than Colgate Palmolive. When P&G gets it right in a country they benefit far more because of their ability to roll out various products across different product categories. When looking at the international markets though one has to like what Colgate Palmolive has been able to accomplish internationally and appreciate the fact that they have not dropped the ball recently - which P&G most certainly has.
It is our belief that the underperformance in P&G shares shall come to an end and one would be wise to rotate out of Colgate Palmolive as its outperformance over the past five years comes to an end.
Source: Yahoo Finance
Although we like Colgate Palmolive a lot and have had it has one of the better ways to play a growing international market, it is our opinion at this time that Proctor & Gamble is now the consumer name to own when looking for global expansion. The company has continued to grow their offerings in recent years and also made some interesting product introductions which capitalize on name brand recognition. If the company can continue to use their brand equity to cash in on new products, and we suspect that will happen as they are renewing their focus on R&D these days, then investors could see a high probability that a few billion dollar product lines are introduced over the next 5-10 years.
One thing we would point out this morning is that Bill Ackman's Pershing Square trimmed its Proctor & Gamble stake by 76% recently (see Wall Street Journal article here). This was always a relatively small stake in the company and now is quite small which diminishes Mr. Ackman's ability to utilize a bully pulpit to get change. We still like the name long-term, regardless of what hedge fund titans are doing in the short-term, but wanted readers to be aware of all of the recent events.