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China's Golden Investment Opportunities Beyond the Olympics

Stock-Markets / China Stocks Aug 19, 2008 - 06:34 AM

By: Money_and_Markets

Tony Sagami writes: This is proving to be one of the most exciting research trips to Asia that I have ever made. Not just because of the buzz surrounding the Olympics, but mainly because of the cascade of investment opportunities that I am uncovering during my stay.

In fact, my biggest problem is that I am finding so many amazing growth stories, that narrowing down the list to the best that China has to offer is not going to be easy. I now know how San Francisco 49ers coach Bill Walsh must have felt when trying to decide what quarterback — Joe Montana or Steve Young — to start.

Beijing's "Main Street" Is Bustling With Business

To give you an idea, let me take you on a walk around the corner from my hotel and down Wangfujing Street in Beijing.

Wangfujing is the main commercial retail street in Beijing and is packed with both tourists and affluent Chuppies (Chinese yuppies) seven days a week.

It's a 700-year-old commercial boulevard near the Forbidden City and aims to rival New York's Fifth Avenue, the Champs-Elysees of Paris and the Ginza in Tokyo. It has two major shopping malls, several large department stores, and hundreds of shops including dozens of western businesses like Nike, Starbucks, Apple, McDonalds, as well as high-end retailers such as Tiffany.

Affluent chuppies — Chinese yuppies — are driving the surge in high-tech items such as cell phones and computers.

So much for setting the locale. Now, here are some pertinent observations:

One of the first things I do after landing in a foreign country is convert my U.S. dollars into local currency. I've learned that the currency desks at airports offer some of the worst exchange rates so I head straight for the Bank of China (Hong Kong: 3988), the fifth largest bank in the world, for the best exchange rate. I've never invested in a Chinese bank and after witnessing the steady stream of banking customers, I may have to re-think my views of Chinese banks.

I prefer green tea over coffee, but there is seldom an empty seat at Chinese Starbucks stores that I pass by. And not just in the morning, either. Starbucks has become one of the most popular places for young Chinese couples to go for dates. Starbucks may be stumbling in the U.S., but business is BOOMING in China.

I always hit a local grocery store when I travel to stock up on fresh fruit and drinks. I do so because I get tired of the high-calorie hotel food and because (according to my children) I am a big cheapskate. I was in luck this time because my hotel was very close to a Carrefour (CA: PA), a large French retailer that has 116 stores across China.

There is a Chinese saying: "A trip to Beijing is not complete if you miss seeing the Great Wall or dining on Peking Duck." Ask any Beijing resident and most of them will tell you that the very best Peking Duck is made by Quanjudge, a restaurant established in 1864. In the last 136 years, Quanjude has expanded to Hong Kong, Shanghai, and many other Chinese cities. Quanjude went public last November and shot up by 271% on its first day of trading.

I stick out like a sore thumb when I'm in China. I'd like to think it is my camera that gives me away as a tourist, but the truth is that I'm just too darn fat. That's okay because the Chinese are very friendly people and love to practice their English on willing Americans. When I complimented their good English, they blushed and gave all the praise to the English-language school, New Oriental Education (NYSE:EDU), that they recently attended.

Beijing in August can be as hot and humid as Florida, which was why I was delighted with the cool, air-conditioned room at the Beijing Northeast Marriott Courtyard (NYSE:HOST) for an afternoon break. Those air conditioners were made by Suning (Shenzhen:2024), one of China's largest household appliance makers.

Even though I absolutely love Chinese food, I find myself craving some American food after a few days. Finding American food is easier than you may think because there are more than 2,600 Pizza Hut and KFC (NYSE:YUM) restaurants spread over China. I always have to wait in line, though, because I have never seen an empty KFC or Pizza Hut in China.

I confess, I do enjoy a beer with spicy food and my favorite Chinese beer is Tsingtao, the most popular beer in all of China. Last year, Tsingtao (Hong Kong: 0168) sold 5 billion liters of beer worldwide and is 27% owned by Anheuser Busch ... I mean InBev ... now.

Every office building elevator I've taken has a bright LCD screen that displays the news of the day as well as short advertisements. There isn't anything to do but watch the screen while you wait for your elevator, so everybody watches them and companies are eager to advertise on them. Focus Media (Nasdaq: FMCN) is the largest advertising company in China.

The Olympic Village has several computer kiosks set up for tourists to check their e-mail. What computer brand do you think it is? Chinese PC maker Lenovo (Hong Kong:0992), the fourth largest computer company in the world.

I wasn't surprised to see the Nike's (Nasdaq: NIKE) famous swoosh logo plastered around the Olympic Village. What did surprise me was the number of Chinese feet wearing Nike shoes. Nike and the Chinese company it hires to manufacture its shoes, Yue Yuen International (Hong Kong: 0551), must have all the business they can handle.

Speaking of fashion, I can't believe the number of Louis Vuitton (MC: PA) bags on the street. While I am sure that some of them are knock-offs, I suspect that one out of every 3-4 Chinese women is clutching a Louis Vuitton handbag.

Domestic and foreign retail merchandise is flying off the shelves throughout China.

And that is just the tip of the business iceberg. I could go on and on, but I need to digest some of my meetings (and the fantastic meals I've enjoyed) before I pull the trigger on any new investments.

China's Due For a Post-Olympic Boom

One thing I do know, however, is that the opportunities are great, as well as the timing. According to some HSBC research, the stock market of Olympic hosts increased an average of 21% in the 12 months after the games.

Those are impressive numbers, but I can tell you that host countries of the Athens and Sydney Olympic Games didn't have a fraction of the booming economy that China is enjoying now. If the Chinese stock market enjoys a similar post-Olympic boom, its returns should be several times as much.

In fact, I think China will be the best performing market in the world in 2009, and I hope you've added enough Chinese spice to your portfolio to take advantage of what could be the biggest post-Olympic boom of all time.

Best wishes,

Tony

P.S. While in China, I'm sending my #1 recommendation to Asia Stock Alert subscribers. Not only am I naming the company, and giving all the important background details ... I'm providing specific trading instructions.

If you're not a subscriber, sign up now for a risk-free trial to Asia Stock Alert . If you subscribe by 3 p.m. on September 12, you'll get my new China recommendation the minute I fire it off, plus you'll be able to immediately download six special reports on other great Asian stocks. Click here for all the details.

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