We better get used to trading in a market that’s all about China because it ain’t going away any time soon. Frankly, we’ve been trading in that market since July of 2008 when the Chinese central bankers put an end to the appreciation in the Yuan and crushed the commodity complex to prevent run-away inflation. Go back and search the blog for that post, it was one of my first here about a year ago.
Anyway, not to get into something bigger here, but the global economy will rise and fall on the back of China in the next couple of decades. The demographics are undeniable and overwhelming, I’m talking everything from food, to energy, to consumer goods and industrial goods. It’s all there. Europe is screwed for the foreseeable future as they have decided to go the route of austerity, whether they wanted to or not. You can pretty much cross off your growth list any companies that do a large part of their business in Europe. Save for a few pockets, like consumer electronics, clothing retailers, education, home improvement, semiconductors, and some industrial machinery, you can pretty much write off growth in the US as well.
Focus on companies doing business in China, Brazil and India, the three centers of real growth. I would even throw in Africa for the more risk inclined, but there really aren’t too many good pure plays there. The Chinese know that the West is broke, and that the days of their economic ascension based upon us buying their goods is quickly waning. They need to stoke domestic demand. Brazil has been pretty successful at doing so, but they are a much different culture. The Chinese are frugal and love to save, the Brazilians, not so much. Both countries need to ignite their domestic economies, and I believe they will both be successful. Say what you want about their political leaders, their political systems, the fact is that both have shown poise and great skill in managing their economies correctly. You all know my line about the US, we are too big to succeed, meaning that our political system has just grown too large with too many different agendas to point us in one direction, with one long term vision, with the ability to fix problems and make quick decisions. Some day the Chinese will run into this problem as well, after they have given their people the political freedoms they will demand. It will happen, it always happens, it is the natural course of globalization. First comes economic prosperity, then come the calls for political freedom to meet that prosperity. I have no doubt this time will be any different. They will choke on their own voices at some point as well, but not for the next 50 years, at least.
So what companies should you be focused on when looking for growth in China? Think anything that catches the farmer up to the modern world. They will eat more food, especially meat, they will travel more, buy more heavy goods like washers, dryers, and air conditioners, get a better education, build better houses, and put more money in the bank or invest it…
Think United States of America circa 1920.
Favorite consumer focused names right now selling in China, Brazil, and India, but mostly China, taking into consideration fundamentals and relative strength:
Ctrip.com International (CTRP), Baidu.com (BIDU), China Automotive Systems (CAAS), New Oriental Education & Technology Group (EDU), Home Inns & Hotels Management (HMIN), BRF Brasil Foods (BRFS), Credicorp (BAP), MercadoLibre (MELI), CPFL Energia S.A. (CPL), LAN Airlines S.A. (LFL), Companhia Brasileira de Distribuicao (CBD), Vivo Participacoes S.A. (VIV), Whirlpool (WHR), Yum! Brands (YUM), Las Vegas Sands (LVS), McDonald's (MCD), Nike (NKE), Apple (AAPL)
Disclosure: Long WHR.