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Ignore the slowdown in China at your own peril, writes Ben Levisohn after GDP growth slipped to...

Ignore the slowdown in China at your own peril, writes Ben Levisohn after GDP growth slipped to 7.5% in Q2, and Beijing shows little sign of easing policy to re-boost it. Consumer staples and health care stocks with high China exposure like Mead Johnson (MJN) and PerkinElmer (PKI) have recently underperformed (on a relative basis), but also at risk are those in materials, industrials, and IT with a heavy reliance on China: DOW, ALTR, EXPD, GE. On the other hand there's Las Vegas Sands (LVS) - maybe unfairly (relatively) punished for its Macau exposure even as the secular growth of gambling there should offset any cyclical economic weakness in China.
Comments (31)
  • alg
    , contributor
    Comments (294) | Send Message
     
    Another case for buying domestic stocks.
    20 Jul 2013, 09:22 AM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    I actually think what Beijing is doing is quite positive. I would actually be a big buyer if Beijing is willing to take some short term pain and make the necessary reform - even if that mean a GDP of say 5%. People need to take a view that's a little longer than 6 months.

     

    Part of the problem of our system is that no one wants the medicine (or they prefer medicine as long as it's administered on someone else).
    20 Jul 2013, 10:28 AM Reply Like
  • Rinascimento
    , contributor
    Comments (1069) | Send Message
     
    Zeus

     

    I agree with you that China is taking the right steps in the short term to address some issues and reform the economy for future growth; I don't understand why economists make so much noise of China's economy slowing down even after decades of 10% average annual growth; it is normal for growth to slow down and it happened to the US when we were on the way up and now the roles are reversed.
    20 Jul 2013, 06:45 PM Reply Like
  • Amber Li
    , contributor
    Comments (27) | Send Message
     
    Totally agree with you Zeus. :) Glad to see the Chinese regulators are making efforts to bolster the economy and adjust structures.

     

    Chinese Premier Li Keqiang has stressed at two economic meetings held lately that the government will focus more on stabilizing growth when the lower economic boundary is likely to be hit, according to DZH News.

     

    When the economy is moving within a reasonable range, the government’s focus will be on economic restructuring and reforms. When growth is near the lower boundary, the focus will be more on stabilizing growth, said Li.
    21 Jul 2013, 10:32 PM Reply Like
  • lghdavid
    , contributor
    Comments (26) | Send Message
     
    I'd rather call this slowdown "sustainable stabilization". During the process, Chinese and foreign firms based in China will surely feel the pinch to varied degree. BTW, Amber, DZH News is an interesting site to get info on Chinese financial market.
    21 Jul 2013, 10:49 PM Reply Like
  • Jessica Sun
    , contributor
    Comments (17) | Send Message
     
    ”Sustainable stabilization" ! Impressive! Thanks for sharing DZH News, david.
    22 Jul 2013, 01:18 AM Reply Like
  • mbablitz
    , contributor
    Comments (28) | Send Message
     
    Slowing is a relative term... the world's second largest economy is still growing at +7%. A very nice mitigating factor. Imagine the euphoria if the US economy was growing at even 4%.

     

    China realizes it cannot continue forever as almost all manufacturing economy. Thus their effort to rebalance their economy with more more emphasis on services and internal consumption. This effort will raise the standard of living for the majority of China's 1.3 billion people. Just imagine the velocity of money as that many people become consumers rather than savers. That's a tide that will lift all boats.

     

    If China miscalculates and their economy slows a little too fast as it unleashing the power of 1.3 billion consumers, I read in the 'Economic Times' that they have a 3 trillion yuan war chest to tap should stimulus be needed.
    20 Jul 2013, 10:29 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    " a 3 trillion yuan war chest to tap should stimulus be needed."
    globaleconomicanalysis...
    Apr 15, 2011 - China's foreign exchange reserves exceeded the mark of 3 trillion U.S. dollars for the first time at the end of March 2011,

     

    Foreign Reserves converted and brought back to China induces inflation. Note the Cn Govt will not induce a stimulus this year as it also promotes inflation.
    20 Jul 2013, 12:20 PM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    So I presume you agree that 7.5% GDP is not doable? Investment community may be too negative on China. I'm less concerned about a lower GDP number in the near term is Beijing is effectively taking a "kitchen" sink approach and using the leadership transition period to push through some painful (but necessary) reforms.
    20 Jul 2013, 12:28 PM Reply Like
  • taskassistant
    , contributor
    Comments (53) | Send Message
     
    Your basing your comment on American ways. I really do not think that the Chinese will actually change their way of life and be consumers and not savers. Their shadow banking economy has a huge effect on the Chinese economy. That won't change for at least a generation and it will take many more for them to make great change. And that is assumed that they will change to Americans ways at all?
    20 Jul 2013, 01:02 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    http://bit.ly/17t5Ig8
    China is the country with the highest savings rate, and according to Marketplace's China correspondent Rob Schmitz, most people in China put away half of their salary into savings.

     

    That is before the consumer's mortgage and car payments. The Cn savings rate is not calculated the same way as in the USA.
    20 Jul 2013, 01:21 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3342) | Send Message
     
    Number one reason why the Chinese are such good savers? They are worried about healthcare. Get hit by a car and the hospital wants the money up front.
    20 Jul 2013, 05:26 PM Reply Like
  • Viper740
    , contributor
    Comments (176) | Send Message
     
    There is nothing special about China's 7%+ growth. If the US pumped as much money into our economy as a percentage of GDP as China did, we would have 7% GDP growth also. But the reason we don't do it, is because it's a bad idea.
    20 Jul 2013, 05:56 PM Reply Like
  • Rinascimento
    , contributor
    Comments (1069) | Send Message
     
    Sam

     

    Thank you for the site; I thought that to save for old age because of the 1 child policy was the main driver to save instead of health care costs.
    20 Jul 2013, 07:02 PM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    Viper740 - isn't the Fed pumping in $85 billion a month which works out to around a little over a trillion a year? By the way, didn't we also have stimulus as well?

     

    People who live in glass house should not throw stones.
    20 Jul 2013, 10:44 PM Reply Like
  • charliezap
    , contributor
    Comments (1383) | Send Message
     
    """If the US pumped as much money into our economy as a percentage of GDP as China did, we would have 7% GDP growth also."""

     

    China grew at 10% a year for 30 years from about 1980, and the growth rate has slowed recently. But 7% of today's Chinese economy is a heck of a lot more than 10% of 1980's. But, although there has been plenty of stimulus spending and bank credit, the growth would not have been possible without the migration of 20 million people annually from the rural areas to urban manufacturing/exporting centers -- while the factory wages were low, they provided much better incomes than were (on average) possible in the rural areas. Other countries with a surplus of relatively unproductive rural labor have also been able to grow rapidly migration to the cities, e.g., post WWII Italy.

     

    """ . . the reason we don't do it, is because it's a bad idea."""

     

    Now, please don't tell me that the Bernank is not engaged in one of the greatest money pumping exercises of all time!
    21 Jul 2013, 12:28 AM Reply Like
  • Viper740
    , contributor
    Comments (176) | Send Message
     
    Zeus, the amount of money the US gov't is pumping into the economy is nowhere the amount China is doing to it's economy. $85 billion is a small figure relative to the size of the US economy. What China is doing, in US terms, would be something like the US gov't doing $4 trillion dollars worth of QE.

     

    China, and now Japan, are doing QE on a massively larger scale than the US has ever done, and the results of both will not be good.
    21 Jul 2013, 08:04 AM Reply Like
  • Viper740
    , contributor
    Comments (176) | Send Message
     
    Bernake's money printing is nothing compared to what the Chinese are doing to their economy. Please look at the numbers. China's growth is mostly due to pumping money into the economy. If the US did the same thing on the same scale, we'd have 8% growth also.

     

    Chinese banks non-performing loans (NPL) are about 18-19%. Now it might even be higher. And if you look at how much money has been going into their banks, that amount (NPL liability) adds up to approximately their known national surplus. They are in a very dangerous position, much more so than the US.
    21 Jul 2013, 08:07 AM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    Has not worked out too badly so far in the U.S.
    21 Jul 2013, 09:37 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    Most people I know in Shanghai have more than one kid. One Child policy is for the urbanites, not the rural.
    21 Jul 2013, 11:48 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    "But 7% of today's Chinese economy is a heck of a lot more than 10% of 1980's. "

     

    Good point so the $100 Consumption 30% GDP 15 years ago is now $300 35% GDP.

     

    The other point, 20 million migrants per year is growth in migrants per year not the total amount in China.

     

    China Communist Party Fate Seen Resting on Farmer Rights
    Bloomberg-Jul 19, 2013
    ... as China's population ages and the dividends fade from past reforms, ... While China had 163 million migrant workers in urban jobs as of the
    21 Jul 2013, 11:56 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5618) | Send Message
     
    (MPEL) is doing fine, so weakness in (LVS) is not due to Macau.
    20 Jul 2013, 10:41 AM Reply Like
  • taskassistant
    , contributor
    Comments (53) | Send Message
     
    I agree with you. LVS has other concerns and I find that the slowing in China makes me re-assess risk. LVS is fairly volatile adding China's slower growth and other mitigating problems I don't feel the risk is warranted.
    20 Jul 2013, 01:05 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3864) | Send Message
     
    http://bit.ly/12DIAZ8
    How did Macau 'out-Vegas' Vegas?
    Interview with Justin Rowlatt | Jul 19, 2013
    A tiny Chinese territory has swiftly displaced Las Vegas as the gambling capital of the world.
    Posted In: gambling, China
    20 Jul 2013, 01:09 PM Reply Like
  • ruggem
    , contributor
    Comments (10) | Send Message
     
    MPEL and LVS are both "BUYS". Not trying to convince anyone to buy them, just sit back and watch everyone make money on these two stocks.
    21 Jul 2013, 02:35 PM Reply Like
  • TFCAB
    , contributor
    Comments (1977) | Send Message
     
    LVS Q2 will be a monster
    21 Jul 2013, 08:25 PM Reply Like
  • Mattster
    , contributor
    Comments (162) | Send Message
     
    This is not news. Everyone knows this already and it is more than already priced in.
    20 Jul 2013, 11:48 AM Reply Like
  • taskassistant
    , contributor
    Comments (53) | Send Message
     
    you would hope........some don't quite get it??
    20 Jul 2013, 01:06 PM Reply Like
  • TimeOnTarget
    , contributor
    Comments (2826) | Send Message
     
    No doubt these guys are damn good salesmen . . . .

     

    http://read.bi/OMeJX5

     

    But still, you gotta have the right kind of customer for these kind of sales.

     

    Will it have a major impact on the Chinese economy if they find fewer customers like José Eduardo dos Santos in the future?
    21 Jul 2013, 01:56 AM Reply Like
  • larocco48
    , contributor
    Comments (4) | Send Message
     
    Why is the price of LVS so range bound considering the following
    facts: ???
    - most countries would love to have a 7%+ annual growth rate.
    - any business in the world has to envy the y/o/y increases in
    business activity enjoyed by Macau and all gambling/leisure
    ventures there. That's exactly how they have 'trumped' Las
    Vegas.
    - Asians do have a propensity for gambling and as the middle
    class in China and the rest of Asia grows, ' Las Vegas ' type
    pleasures will surely be enjoyed by a larger slice of the pop-
    ulations in the East, not just the 'high rollers'.
    - The new train system linking Macau with the Northern part
    of China will definitely get the 'middle class' to the gaming
    tables much closer to home.
    So, given these facts, why is the price of LVS going nowhere in
    the face of $67-69 analysts price targets?
    Can it be that some potential new LVS investors may be
    put off by the volatility of its' stock price' ? As one can easily see,
    LVS is heavily day- traded. Definitely a good way to make some
    income while waiting for the 'Real Move' upward !
    What do you make of this paradox??!! When will we see $60
    AGAIN ?
    21 Jul 2013, 11:24 AM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2061) | Send Message
     
    No worry, no worry at all here, as long as the 'Committee' is still 'Standing' and not sleeping or lying down.

     

    Emergency Rule is their prime game in town and had been most effective for the past 60 years. 'Do As You're Told; And Don't Ask Questions' is the Motto.

     

    Besides, the Death Penalty is routinely used as a tool to deter dissent, very powerful execution indeed.

     

    As long as the 'Committee' would be able to continue to breed stronger and stronger emperors.
    21 Jul 2013, 02:42 PM Reply Like
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