Chinese Whispers

“A communist is like a crocodile: When it opens it’s mouth you cannot tell whether its trying to smile or preparing to eat you up” (Winston Churchill)

As we re now well on our way into the second half of the year and holiday time in much of Europe, the markets continue to chug along quite nicely. Some pull backs in Japan and Germany but  still positive year to date and you’ll be hard pressed to find a better return on your cash for relatively low risk than established equity markets.

So the raw data ……
                                                     July                                YTD
Dow J                                          +2.5%                             +10.8%
Nasdaq                                        +3.4%                           +18.0%
FTSE                                           +0.8%                            +3.2%
Dax                                              -1.7%                            +5.6%
Nikkei                                           -0.5%                            +4.2%
SSE                                              +2.5%                            +5.5%

The currency trends continued, with the USD generally losing ground against other established currencies. GBP still struggling a little with volatility caused by politics. I spoke in my June blog of increased confidence in the Euro which has proven to have been well judged, now getting US$1.18 for one against US$1.12 a couple of months back.
                                                       July                              YTD
GBP                                              +0.3%                            -6.3%
EUR                                              -2.9%                            -11.7%
JPY                                               -1.6%                           -5.8%
CNY                                              -0.6%                            -3.1%
AUD                                              -3.9%                            -11.0%

Having used one of Winston Churchill’s quotes here about communism , another of the great man’s comments which although was directed at Russia, could also be used about China. “A riddle, wrapped in a mystery inside an enigma”

This is one reason why the Chinese market is one I have stayed away from. Uncertainty about the credibility of the statistics around growth, the MSCI Emerging Market Index only allowed Chinese stocks to be included a few weeks ago, along with the State’s ability to interfere with the stock market make it a difficult place to understand . As you know I buy things I understand.

China is clearly a growth story and its size cannot be ignored. If you were asked what the fifth largest city in the world is, few would say Tianjin, a place where whilst I have heard of it I know very little about.

Three of the world’s top five cities are in China and it now has five mega cities, (cities with a population of more than 10 million) It also has 102 cities with a population of more than 1 million people, to give you a comparison both Europe and the United States combined have 44.

Urbanisation is happening at the startling rate of 65% and by 2030 there will be more than 1 billion city dwellers in China alone.

And with these trends, where does the growth really lie, in the Chinese market or the global players who will fuel these urban Chinese, my opinion is the latter.

I have spoken before about the rise of fast food companies in India. To give you a comparison China already has over 2,200 McDonalds and 4,400 KFC compared to India’s 250 and 372 respectively. A 65% increase in urban dwellers means a 65% more people in these cities to feed, someone has to do it and why not the Colonel and Ronald…

Apple Pay has just been launched in China where last year US$5.5 trillion was spent on mobile payments, it doesn’t take a huge chunk of that kind of money to increase the bottom line even with a balance sheet as giant as Apple has.

Companies grow by the consumer buying and using their products, core stocks mentioned above will continue to benefit from these Chinese consumers and it certainly isn’t slowing down any time soon….

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *