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U.S. Companies That “Get” China’s Consumer Boom

Companies / China Stocks Dec 01, 2010 - 09:36 AM GMT

By: Tony_Sagami

Companies

Best Financial Markets Analysis ArticleI did a little shopping over the Thanksgiving weekend, but everything I bought — a few electronic doodads, video games and clothes — was over the internet.

Three years ago I made the mistake of standing in line with a bunch of other shopping diehards at Best Buy at 5:00 a.m. Let me tell you, standing in a line in late November in Montana is something I’ll never do again.


I didn’t spend a ton of money on Black Friday, and it looks most Americans did a modest amount of shopping too. Sales for Black Friday hit $10.7 billion, a tepid 0.3% increase, according to ShopperTrak.

I wouldn’t call a 0.3% increase a bust, but it is nothing to write home about. And it is less than the know-it-all experts on Wall Street expected.

U.S. Retailers Court Foreign Shoppers To Boost Black Friday Sales

In San Francisco, thousands of tourists from Singapore, Malaysia, China and Indonesia hit malls and outlet stores on Black Friday.

Sawgrass Mills in Sunrise, FL reported that as much as 20% of its shoppers were foreigners from Latin American countries, such as Brazil and Venezuela.

The retail situation is a lot different across the Pacific Ocean. Retail sales in China climbed 18.6% in October from a year ago to $215 billion, according to China’s National Bureau of Statistics. That is on the back of an 18.8% increase in September and an 18.4% jump in August.

This year isn’t an aberration either. Over the last five years, retail sales have grown 16% to 18% a year while China’s gross domestic product has grown 8% to 12% a year.

In Hong Kong, January-to-September sales this year are up 17.9% from the same period in 2009. Maureen Fung, general leasing manager for mall operator Sun Hung Kai Properties, said that its 33 shopping centers are all expecting about a 10% sales increase from a record season last December.

China's retail sales climbed more than 18 percent in October.
China’s retail sales climbed more than 18 percent in October.

That is quite a contrast to the United States, which market research group eMarketer expects to improve by a modest 2% to 3.5% growth this holiday season.

Miracle on Nanjing Road: It’s A Wonderful Life for Chuppies!

China’s economy isn’t feeling a consumer spending pinch at all. Those Chinese shoppers aren’t just buying chopsticks or tofu, either. They’re buying big ticket goods like crazy.

Get this: As recently as five years ago, the Chinese bought only 1% of luxury handbags. Now, China is the second-largest consumer of luxury goods, accounting for 27% of the market. And within a few more years will become the No. 1 luxury market in the world.

Japan, by the way, is the No. 1 market for luxury goods.

I’ve seen the luxury consumption with my own eyes. BMW cars, Rolex watches, Louis Vuitton handbags, Prada shoes are everywhere, and Nanjing Road in Shanghai is now the equivalent of what 34th Street in New York City once was.

Talk about an economic miracle! And that’s why I suggest you …

Put the Power of China’s Booming Retail Sales into Your Portfolio

The reason for the spending spree is simple: China is creating a new bulging middle class estimated to be 100 million to 150 million today. That number is expected to DOUBLE by 2015.

These “chuppies,” or Chinese yuppies, are educated and have money burning holes in their pockets. As a result, Chinese consumption is estimated to increase by a whopping 18% a year over the next decade.

My point is simple: As an investor, you do not want to put your money where the consumers are cutting back and pinching pennies. Rather, you should consider investing in countries with economies that are still growing.

You don’t have to invest in Chinese companies to profit from the China consumer spending boom. In fact, Chinese consumers are so enamored with designer brands that investing in western companies who do big business in China will be big winners.

Three U.S. Companies That ‘Get It’

Apple (AAPL) expects to pull in about $2.9 billion in sales from China alone this year, but Morgan Stanley expects that number to triple to over $9 billion by 2012.

I actually think that number is pretty low because I see more iPhones in Shanghai than I do in Seattle, more iPods in Beijing than Boston, and more iPads in Hong Kong than Houston.

Apple ‘gets it’ about China. It has opened four Apple retail stores in China already and plans on opening 25 more stores by the end of 2011.

Coach (COH) is one of the big beneficiaries of the label lust that dominates Chinese consumers. Americans love designer labels, but Asians — especially the Japanese and Chinese — are designer addicts.

Coach has 345 retail stores in North America, but it has opened 169 stores in Japan and 49 stores in China. In 2011, Coach expects to open 30 new stores in China, and eight new stores in Japan.

Business is so good at Tiffany (TIF) that it raised its 2010 full-year forecast by 12 cents to $2.72 to $2.77 per share.

The reason for the strong profits is Asia, of course. Same store sales in North America increased by 9%, but sales in Asia jumped by 24%.

Tiffany also gets it. “China will rapidly become the place where we will have the greatest number of new stores. Within the next three years, the number will stand between 25 and 30,” said Tiffany CEO Michael Kowalski.

Another option would be the Global X China Consumer ETF (CHIQ), which owns companies like Dongfeng Motors, Air China, China Yurun Food Group, New Oriental Education, Tsingtao Brewery, and Want Want China Holdings.

DISCLOSURE: My Asia Stock Alert subscribers already own and have big profits on New Oriental Education (EDU) and Tsingtao Brewery (HK:0168).

Should you rush out and buy any of these stocks tomorrow? As always, timing is everything, so you should wait for a pullback before committing any new money.

Furthermore, these aren’t the only three companies making a bundle in China. Lots of U.S. companies have made China a central part of their marketing strategies and are powering their profits with booming China sales.

When it comes to portfolio profits, the solution is the same: Make China a big part of your investment strategy.

Best wishes,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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