It’s generally acknowledged that China has been the big red growth agent on the world stage since the Great Recession knocked the stuffing out of the global economy. China’s breakneck GDP growth in recent years has helped create a burgeoning new wealthy class of “Chuppies,” a term used to describe the country’s nouveau riche population.
The tremendous growth of not only the Chuppie class, but also the near concomitant rise of China’s middle class, has made the Asian behemoth the demand hub for all types of goods and services. China’s huge appetite for agriculture commodities, basic materials, oil, technology products, luxury goods, etc., continues to keep the global growth engine revving.
Recently, some have questioned the China growth story, citing as evidence the country’s slowdown to 9.1% GDP growth in the third quarter. That number was down from the 9.5% growth the Chinese economy experienced in the second quarter. Although there has been a decline in the rate of China’s GDP growth, what needs to be kept in perspective is that despite this relative slowdown, China’s economy still is growing five times faster than U.S. economy. Moreover, the latest data from China’s manufacturing sector suggests the GDP slowdown soon might come to an end. The HSBC Flash China Purchasing Managers’ Index (a widely followed measure of manufacturing activity) rose to 51.1 in October from September’s reading of 49.9. A reading greater than 50 is considered expansionary, and that means we could see a bump in GDP growth in the final quarter.
Given China’s dominance on the global stage, what’s the best way for investors to play her economic prowess? Here are five companies in five different sectors that continue profiting from China’s dominance.
CVR Partners
With all of China’s billions of richer mouths to feed, the demand for protein has surged. So too has the need to grow the feed that helps grow the protein sources. The greater demand for food means big demand for fertilizer to help squeeze out every drop of profit from each acre of land. That’s where fertilizer maker CVR Partners (NYSE:UAN) comes in.
CVR Partners is the only company in North America that uses a petroleum coke gasification process to produce nitrogen fertilizer, a process that keeps the cost of the product very low. In fact, CVR is the lowest-cost producer of nitrogen fertilizers in the country. The company has the large production capacity of a 1,225 ton-per-day ammonia unit, and that production capacity is going to be put to the test thanks to the burgeoning demand for protein-rich food in China.
China Mobile
China’s new wealth class has made it the biggest market in the world for personal technology devices, such as cellular phones. As of May, more than 900 million cell phones were in use in the county, and providing the communications services for the nearly two-thirds of those phones is telecom giant China Mobile (NYSE:CHL). The company is the largest mobile wireless provider in the world, with more than 600 million subscribers.
Recently, China Mobile confirmed that it was in talks with Apple (NASDAQ:AAPL) to offer the iPhone on its specialized TD-SCDMA network. If that deal goes through, it would give China Mobile an even bigger slice of the world’s largest cellular pie.
Coach
Chuppies love to shop, and they love to shop for luxury goods. One of the favorite brands used to show off wealth is Coach (NYSE:COH). During the past several years, well-heeled Chinese consumers have shifted from buying cheap knock-offs to spending considerable money on authentic luxury items, and Coach goods are what they’re spending money on.
The company recently announced a fiscal first-quarter profit increase of 14%, which it said was because of strong demand for its luxury handbags and accessories from China. In fact, China is Coach’s fastest growing business segment, and revenue in Chinese stores open at least one year rose in the double-digit percentages last quarter. The company opened four new locations in China during the quarter, and one in Macau, bringing the total to 71 stores and climbing.
Lenovo
China likely has overtaken the U.S. as the top PC market for the first time. Personal-computer shipments in China rose 14% to 18.5 million units during the second quarter, while shipments in the U.S. fell 4.8% to 17.7 million, according to industry research firm IDC.
The demand for PCs is helping China-based Lenovo (PINK:LNVGY) continue to grow faster than any of the other major PC manufacturer. The company’s recent fiscal first-quarter earnings results showed that for the seventh consecutive quarter, Lenovo grew faster than any of the top five PC manufacturers. Analysts think the company soon might overtake Dell (NASDAQ:DELL) as the world’s second-largest PC maker by the end of the year.
Wynn Resorts
Bellwether casino operator Wynn Resorts (NASDAQ:WYNN) recently posted weaker-than-expected Q3 earnings. However, the real news in Wynn’s report was the growing dominance of Macau as the world’s pre-eminent gaming hub. Revenue from Wynn’s Macau operations provided the lion’s share of the company’s revenue, and that’s because of the continual influx of wealthy Chinese into the former Portuguese enclave.
Wynn Macau saw a 41.7% year-over-year increase in revenue to $951.3 million, and that accounted for nearly three-quarters of the company’s total revenue. The surge in revenue from Wynn Macau shows the power of Chinese consumers — consumers who helped support a 39% rise in Macau gaming revenue in September.
As of this writing, Jim Woods did not own a position in any of the aforementioned stocks.
