Last week, Wal-Mart said business isn’t so great. The deep discounter reported a pathetic same-store sales increase of just 0.5% for October.
Initially, the company was predicting a gain of 2% to 4%. Then, just a week before the results were released, it ratcheted the forecast down to a 1.3% increase, on par with September’s results.
The fact that the company missed its recently-revised target tells me that Wal-Mart’s business is falling … fast! After all, Wal-Mart has one of the most sophisticated sales and inventory tracking systems in the world – it knows exactly how much it sells and spends each day.
The Wal-Mart big shots also said falling gas prices are not translating into higher sales. That’s the exact opposite of Wall Street’s prediction, and a very worrisome sign that consumers are reluctant to part with their hard-earned dollars.
First, I want to tell you what Wal-Mart is doing about it. Then, I’ll tell you how it relates to your investments …
Chinese Discount
Store Is a Big Deal
In 1997, Taiwanese tycoon Winston Wang founded a business called Trust-Mart. His big-box retail stores, which sold everything from food to electronics, soon numbered 100.
However, not all the stores were in affluent coastal cities like Shanghai and Guangzhou (Canton). They were spread out through 20 different provinces, including smaller, less-wealthy inland cities.
Gee, doesn’t this sound eerily similar to the business model that a certain Bentonville, Arkansas-based retailer built its success on?
Well, guess what? Wal-Mart just paid $1 billion to buy Trust-Mart. It figures the move will help supplement the 66 stores it already has over there.
And Wal-Mart isn’t the only retailer licking its chops over Asia. More than 1,000 foreign retailers received permission from the Ministry of Commerce to do business in China last year, according to a retail industry report by Jones Lang LaSalle. That’s triple the total from the previous 12 years combined!
Unless the people running Wal-Mart and 1,000 other retail operations are all complete morons, this indicates there’s some big, big money to be made in Asia. The reason is simple …
Our Economy Is Puttering Along,
While China Keeps Cooking
I’m not surprised that Wal-Mart’s sales are stagnant here in the States. Consumers just don’t want to spend money these days. The Commerce Department reported that consumer spending increased by a paper-thin 0.1% in September.
That number dovetails right into the Commerce Department’s latest Gross Domestic Product (GDP) figure, which showed our economy expanded by a measly 1.6% in the third quarter of 2006.
Contrast that with what’s going on in China: In the first nine months of 2006, Chinese GDP gained 10.7%. That’s on top of 10.1% in 2004 and 10% in 2003.
To be fair, I should tell you that even the Chinese themselves expect their economy to slow next year. The National Development and Reform Commission forecasted that China’s economic growth would fall below 10% in 2007.
But even if China’s economic growth slows to 9% (which I think is much too low), it’s still going to be much stronger than what the U.S. is posting. And that’s why I keep urging you to at least stick a big toe into this rapidly growing region.
Am I telling you to abandon the U.S. and put 100% of your money in China? Heck no. But I get frustrated because most of the investors I talk to have nothing invested in Asia.
Are there landmines in China? Sure. Last week, I told you why I don’t like the banking sector. Today, I’ll give you another example: Semiconductor Manufacturing International Corp (0981.HK), China’s largest semiconductor company, hit an all-time low last week. Reason: the company is bleeding red ink.
Still, selective investors can find great opportunities. Even among the limited number of Chinese companies trading on U.S. exchanges, you’ll find a bunch of big winners. Just look at the table!
| Company | Ticker | YTD% |
| China Life Insurance | LFC | 146% |
| China Mobile | CHL | 88% |
| Ctrip.com | CTRP | 70% |
| Focus Media | FMCN | 73% |
| The9 | NCTY | 58% |
| eLong | LONG | 44% |
| China Petroleum | SNP | 47% |
A Chinese proverb says, “The crafty rabbit has three different entrances to its lair.†In other words, you need alternatives to succeed.
I suggest carrying that advice over to your investments – make sure you’re diversifying your stock holdings globally, and pay particular attention to Asia.
Best wishes,
Tony
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Monica Lewman-Garcia, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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