While most of Wall Street is at the beach, my colleague Tony Sagami just spent the last few weeks in Beijing, seeing what’s really going on inside China. He picked up some pretty amazing insights that you won’t want to miss, especially about one of the region’s most-promising potential investments: The emerging consumer. How, and where, people are spending their time and money there may surprise you. — Nilus |
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I just returned from an 18-day Asian treasure hunt, this time taking a close look at what’s really happening in China from inside the heart of Beijing.
I love these research trips because I get to see new, fascinating parts of the world, meet interesting people and, most importantly, discover incredible investment opportunities that the Wall Street crowd has never heard of.
I’ve been on many trips. And EVERY one of them has yielded at least one investment home run.
My last trip, for example, was to Cambodia for the 21st annual Association of Southeast Asian Nations (ASEAN) Economic Summit.
As a result of that trip, I found a virtually unknown but wildly profitable Cambodian company (that trades in the United States, by the way) that I recommended to my subscribers at around 45 cents. That stock zoomed to 57 cents in just 90 days … which was more than a 25% gain, on top of the juicy 8% dividend it pays!
Like all my previous research trips, I uncovered some of the most exciting investment opportunities I’ve ever seen in my life.
I had dozens of meetings with corporate, academic, technology and government leaders. And while those meetings are an important part of my research, I find that I learn just as much, if not more, from talking to waiters, concierges, taxi drivers, university students, cashiers, and just about anybody who is willing to answer my nosy questions.
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| Wangfujing Street aims to rival New York’s Fifth Avenue, the Champs-Elysees of Paris and the Ginza in Tokyo. |
But you can also learn a lot by just keeping your eyes and ears open. To give you an idea, let me take you on a walk down Wangfujing Street in Beijing …
Wangfujing is the main commercial retail street in Beijing. It’s packed with tourists and affluent Chuppies, or Chinese yuppies, seven days a week.
It’s a 700-year-old commercial boulevard near the Forbidden City. It has two major shopping malls, several large department stores, and hundreds of shops … including dozens of western businesses.
Let’s Take a Stroll Together
I need some cash, so I head to China Construction Bank (CICHY), which is the second-largest bank in the world. If lines of customers are any indication of business health, then China Construction Bank is very healthy.
Then I need a jolt of caffeine so I head over to Starbucks (SBUX), which are found all over China. I walk into the Wangfujing Starbucks but there isn’t a seat to be found. And not just in the morning, either!
Starbucks has become one of the most-popular places for young Chinese couples to go for dates in the evening. Starbucks may be stumbling in the U.S., but business is BOOMING in China. In fact, the most recent quarter showed that same-store sales continue to grow by double-digits.
Let’s move along to our next destination.
There is a Chinese saying: “A trip to Beijing is not complete if you miss seeing the Great Wall or dining on Peking duck.”
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| KFC’s parent, Yum Brands! (YUM), is opening a new KFC in China every 18 hours … on top of the 3,500 already there! |
I don’t have time for a sit-down dinner so I head into a Kentucky Fried Chicken restaurant that is absolutely packed with customers for an Old Beijing Twister — a wrap modeled after the way Peking duck is served, but with fried chicken, spring onions and hoisin sauce.
I stick out like a sore thumb when I’m in China. I’d like to think it is my camera hanging around my neck that gives me away as a tourist, but the truth is that I’m just too darn fat to be mistaken for a local.
That’s OK because the Chinese are very friendly people who love to practice their English on willing Americans.
Where do they learn English? For most, the answer is New Oriental Education (EDU), the largest English-language school in China. New Oriental recently took a big hit to its shares as it announced that the SEC is investigating it. But earlier this year, my subscribers took up to a 200%-plus gain in the stock.
And what are people wearing as they walk around Wangfujing Street?
The famous Nike (NKE) swoosh is plastered everywhere in China. And the Nike store on Wangfujing Street is one of the busiest in the world. Nikes are considered to be very fashionable here. And the number of Chinese feet with Nike shoes on them is staggering.
Speaking of fashion, I can’t believe the number of Louis Vuitton (LVMUY) bags that Chinese women are toting around.
I suspect many of them are knockoffs. But my eyeball-estimate is that one out of every four or five Chinese women is clutching a Louis Vuitton handbag. Coach (COH), by the way, would come in second.
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| Apple stores in China, like the one behind me, are always packed. |
Growth always brings changes, most positive but some negative. And one of the most-irritating new trends I’ve noticed this trip is that lots of Chinese youths are so busy looking at their smartphones that they walk right into you. Overwhelmingly, the smartphones they are so engrossed in are iPhones from Apple (AAPL).
Back to our tour …
Beijing in August is extremely hot and humid, so I duck into an air-conditioned Marriott hotel to cool off. Marriott (MAR) has committed to opening at least one new hotel in China every month for the next three years and is benefiting from the booming travel business in China. A purer China hotel play is Home Inns & Hotels Management (HMIN), the Howard Johnson of China.
One of the Chinese taxi drivers that I meet during my trip gives me a friendly but serious lecture that American companies are making Chinese women fat!
I agree that the Chinese are fatter today than they were when I first started traveling to Asia. But that is what happens when you start eating McDonald’s (MCD) french fries and drinking soda pop from Coca-Cola (KO).
The sightseeing is enlightening and encouraging, with one small drawback … which is that I’ve developed a persistent, ugly little cough that started shortly after I landed.
The air pollution in Beijing is as bad as I’ve ever seen it. And the Chinese government needs to do “something” because the health and social consequences from long-term exposure to this much pollution has got to be dire.
Whoever helps China clean up that air pollution is going to make a ton of money. That someone could be Fuel Tech (FTEK), which has been working to expand its scrubbing technology for coal-fueled electrical plants into China.
After a long, long day, I need a cocktail so I drop in on a Wangfujing watering hole. The place is plastered with signs for Johnnie Walker Red, which is the No. 1 foreign liquor sold in China.
Diageo (DEO), which makes Johnnie Walker, has seen its scotch sales increase by 50% over the last five years largely from its soaring Asia sales.
In fact, my subscribers just got stopped out of Diageo with a 20% return in Diageo late last week.
That’s just one of many examples that the domestic-consumption side of the Chinese economy is still strong and thriving. It also shows us that some of the most-profitable ways to play Asia come from companies based in the USA and other parts of the Western world.
Although China’s economy may be slowing down, keep in mind that it’s still growing … and doing so at a pace that developed nations simply can’t match. And the opportunities to profit are closer to home than you might think!
Best wishes,
Tony
{ 6 comments }
Tony,
You referred to Home Inns as the Howard Johnson of China. I would like to point out that my company is the Howard Johnson of China! We manage 42 hotels in China and am surprised that you did not come across any of them during your travels. We are 4 and 5 star hotels in China. On your next trip I’d like to invite you to duck into one of my hotels.
David Kasten
CEO Howard Johnson Management Company Ltd.
It would seem the Chinese in general are no wiser than the Americans in general. With what they are eating and drinking the next major boom would be the health care industry. Shop til you drop will drop like a rock when our money (future debt obligations) the govt gives away to the banksters, who have been spending everywhere but where WE really need it, comes to an end.
HI TONY,
I ENJOYED YOUR ARTICLE. DO YOU KNOW HOW MUCH A CHINESE CITIZEN IS LEGALLY ALLOWED TO EXCHANGE THEIR YUAN INTO USD PER YEAR? WHAT ARE DIFFERENT WAYS THEY CAN DIVERSIFY IF THE AMOUNTS THEY’RE ALLOWED TO EXCHANGE ARE MINIMAL?
THANK YOU,
DAVE
There is an old adage about lineups at the cashier. Either the store/cafe/etc. is busy or…the clerk is in the toilet. If anybody moved 500,000,000 people to town, I suspect that the stores/banks/cafes would be crowded. Think, what happens when the Chinese try to supply services to that many new townies? Chaos and more chaos. This is not planting rice. This is trying to run a modern society when most of the manufactured goods are crap. Good luck.
I loved this srticle. A very vibrant and original way to tell us about China without boring charts and cold data. My respect to Sagami and to all of Weiss team to provide such precious advice.
My humble forecast, based on what i’ve read in this article, is, : if Chinese people are starting to eat like Americans, they’ll soon need also drugs to cure themselves and that’s probably bullish for Big Pharma.
IS IT SOFT OR HARD?
First they all said China was in for a soft landing. They they all said no, it’s probably in for a hard landing. Then they changed it back to soft, then they said, no, probably it will be hard.
LIES AND DECEIT
Back and forth it goes. The fact of the matter is that anyone who is familiar with Chinese character knows they fudge, lie, fabricate, deceive, steal, cheat, and cook the books all the time. Their own leaders arrest subordinates constantly for corruption.
SHODDY DANGEROUS GOODS
They have sent America shoddy, poisonous, faulty, and dangerous goods for decades now. The American people demanded cheaper prices and they got cheap shoddy goods with the cheaper prices that endanger their health and fall apart after a short time.
Chinese put plastic in milk and killed countless babies before their own gov stopped it. They sold millions of square feet of poisonous drywall to U.S. builders that corrodes the electrical wiring in homes and makes the inhabitants sick. They put drywall and cement to make up the weight in prescription drug capsules and sold those to America. Some may still be on drugstore shelves. They put lead paint on their toys which poisons our children. And, on it goes.
COOKING THE BOOKS AND FALSE CORPORATE REPORTS
They cannot be believed when China CEOs give the summary of corporate profits, corporate health, or growth. Sino-Forest scandal in June of 2011 proved that. Shortly after there was a huge collapse in China stocks as Westerners fled for the exits.
I bought several China stocks on Mr. Sagami’s golden recommendation, and both have collapsed, one over 95%!! He hyped them to high Heaven, as he still hypes China stocks.
You simply can’t trust China. Sure, they may end up taking over everything, but it will be by deceit, fraud, lies, scams, and corruption—-not the type of thing I like to invest in now that I know how they operate.
China students gain entry to American universities on falsified exam scores. Everybody knows it too, but they get in because the American schools are hungry for the cash they bring.
When they say they are growing 10% per year, do you believe them? Their regional chiefs will do anything to pad the numbers because that is how they gain glory and money from above. It’s all based on lies, scams, and deceit. Ask any Chinese living in the USA now, and he or she will spill the whole story to you. I have MANY Chinese friends who bluntly tell me what I already know, confirming it to be true. That is why they all desperately wish to stay here in the USA.
Deceived no more,
FS