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These Retail Companies Are Most Exposed To China's Economic Slowdown
Now that China's economic slowdown is official, and in the aftermath of the Q1 trade data embarrassment Chinese GDP may have no choice but to print at a sub-7% annualized rate (especially if the PBOC continues to stubbornly refuse to inject liquidity in the financial system), it is no surprise that Emerging Markets around the world have seen a furious smack down in the past several weeks, with many markets now outright negative for 2013. At the same time corporations, trading in still buoyant markets, which have extensive exposure to China on both a top- and bottom-line basis, have managed to avoid the beatdown due to their presence in liquidity-friendly regimes. But how much longer will central bank beta float all boats burdened by increasingly heavy (lack of) alpha? And which companies are the most exposed to China's, and broadly Asia's, consumption slow down? Below, we present the answer for companies that have both a discretionary and staples exposure to the China and the Asia (ex-Japan) markets.
Discretionary:
Staples:
Some highlights from the universe above:
Richemont offers China exposure in watches (IWC, Vacheron Constantin, Jaeger LeCoultre), jewellery (Cartier, Van Cleef & Arpels) and online luxury distribution (Net a Porter). In the past, Richemont has utilised its growth and cost advantage to support margin and return on capital expansion by over 500 bp since 2004, delivering sector leading cash returns (25% vs. 20% for luxury sector). Can it continue to do so?
LVMH has also benefited in the past from its exposure to the luxury and aspirational Chinese segments. On a divisional basis, fashion and leather goods, with a unique asset in category leader Louis Vuitton brand. Selective Retail (DFS and Sephora) now accounts for 28% of group sales and is levered to the rising middle class growth in China.
Remy Cointreau & Pernod Ricard is the foreign spirits leader in China. With c. 40% of group revenue in China, Remy has been the most obvious beneficiary of the positive dynamics for imported spirits in China. Furthermore, Remy’s exposure to China is principally through cognac, a category for which China is driving global value growth with 45% of total cognac sales by value in China. But with the benefit of the upside already priced in, how will the brand withstand a China where a secular shift to slower trend growth appears to be the new norm?
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What's China's percentage of gold purchases?
Probably more than those in the US but not by as much as you think. As for those companies listed above, high-end retailers and companies geared toward rich folk tend to THRIVE during economic downturns.
Remy Cointreau counts as part of "consumer staples"?
SRSLY?!
How drunk do you have to be to call booze a consumer staple? Sounds like a Soviet-era stat regarding vodka....
“I see in the fight club the strongest and smartest men who've ever lived. I see all this potential and I see squandering. God damn it, an entire generation pumping gas, waiting tables, slaves with white collars, advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of the history man, no purpose or place, we have no Great war, no Great depression, our great war is a spiritual war, our great depression is our lives, we've been all raised by television to believe that one day we'd all be millionaires and movie gods and rock stars, but we won't and we're slowly learning that fact. and we're very very pissed off.”
....our great war is a spiritual war... Bingo!
Naw....it'll be real enough far to soon.
Yeah Scarlett, "we" are all victims ... except those of us who chose not to be, long ago saw thru the BS, and started planning/doing otherwise. For those of us who are not lemmings and sheep, the savanna still has sufficient prey to live pretty well.
Fuck LV...
~~~
Simon Black will singlehandedly corner the market in 'Rochefoucauld's'...
~~~
OBAMACARE will take care of 'Remy'...
http://www.youtube.com/watch?v=v7dFyaq-pYc
Who cares about any of those company's.
those companies whats?
Exactly
(You do realize that you just got grammar-policed, right?)
Who cares about any of those company's maudlin self-esteem propping bling.
I don't care about any of those damn companies either; run by arrogant finger sniffers.
what's to care about those companies' whats
I want to know how Remy, Contreau, Ricard, Pernod, and Carlsberg are staples in China. I guess we aren't capitalistic enough.
A few years back my daughter at 19 spent a year at Shanghei. She was amazed how much cognac was consumed at the time. She got an appreciation for higher end cognac after drinking it for a year. Also it was about 1/5 the cost you'd pay in the USA. My vet has been offered a job in china helping them establishing a Chinese equestrian team for the Olympics. He's flabbergasted at the money they are dumping in this project. They've spent one million just to purchase one horse! They are determined to buy themselves a gold medal (getting gold the hard way). I think they see the Olympic medals and the cognac is a stab a global legitimacy, showing the world they've made it. Reality will have to prevail at some point. Kinda hard to return to the rice paddy when you've sipped the high life.
Miffed;-)
Interesting http://www.nytimes.com/2013/06/16/world/asia/chinas-great-uprooting-moving-250-million-into-cities.html?hp&_r=0
Americans who gather around their screens to watch the Super Bowl, pop open a Bud, and cheer on Madison Avenue at half-time care.
A-B has not only been saturating the beer market in China, it has been brewing their beer in China for two decades. Its cheaper for them to brew it there, bottle it there, and ship it to America than it is to brew and bottle it in the US of A.
So when you pop open that Bud on the 4th of July, thank the Chinese for their contribution to this wholly American holiday!
It's becoming a Holy holiday - with Chinese beer - funny if it weren't a tragicomedy.
You sure about American Bud being brewed in China? Doesn't say that on the can.
Yup I'm sure. At the beginning of the Great Recession, A-B and its 'investing' partners were taken to task because of the number of jobs and production that was being shipped to China. Bud specifically began production in China around then after A-B proudly announced it was investing several more billion USD there. The other corporations that A-B has aligned with have been mass producing other products there for around two decades. There are still some Bud breweries left in the US. I have no idea how much of the consumption market those breweries serve, so its possible it says that on your can.
Bud is also one of the leading beers in China. There it costs about 60 cents for a standard size bottle or can. The Chinese commercials for it are something else.
A Belgian conglomerate owns AB. It allows them as a huge single buyer of grain to influence grain prices.
These companies represent the top tier of high profit, high-frequency (I mean products leaving shelves at a high temporal rate) consumer goods or more bluntly the frothy cream of the expanded and America-financed Chinese marketplace. I am very interested in this. The great old money of Europe owns western supply access to these markets and it shows on this list. The profits made in consumer goods sold into captive Chinese markets can be reliably diverted into powering the price control schemes for commodities like coffee, bananas, and cacao all of which are price controlled traditionally by German families.
It's a big club fixing agricultural coomodity prices in Latin America by selling high-priced consumer goods into China, and USA ain't in it. 300 years of revolution against Europe and we are still buggered daily and pervasively. Many of these companies share board members.
Fascinating, you should submit a post. you can see how they use america as the foot soldiers and totally doinate our banking cartel.
Yes, ParkAve wrote a great piece.
Seconded! Submit something like that to Tyler!
buttwiper is terrible beer anyway. I had no intention of ever drinking it again anyway even before I found it was made in China.
What an easy way to poison americans when you should decide to decrease the population by 90%. All our stuff comes from China. Even some vegetables. It'd seem crazy unless you understood it's about money. Ripe for conspiracy theory also. How many buttwiper drinkers could be poisoned by chinese beer? No EPA or usda standards in china.
I usually drink craft or small brewery beer (flying dog from PA, sierra nevada from CA and bridge brewery from WV). Maybe I need to go back to brewing my own.
insightful answer
well that explains the "chicken piss " taste of the Bud!
When China goes down... it'll be quite something... 1 billion pissed off Chinese... hell even in 2008-2009 when things almost collapsed totally... but didn't... there were 230 000 protests across China against the economic conditions and the regime... it'll be much worse when things REALLY collapse and all the bubbles the government created go kaboooom.
I think we missed this?
http://www.breitbart.com/Big-Peace/2013/06/11/12-Jun-13-World-View-Deja-...
Greece's disaster du jour: Privatization of natural gas firm collapsesBarely a day goes by when the news about Greece's economy doesn't worsen, and Tuesday was no exception. The plan was that Greece would privatize its government-owned natural gas firm DEPA, raising as much as 1 billion euros, to help offset the country's massive debt, and satify the terms of the bailout agreement with Greece's European creditors. However, Greece did not get a single bid for DEPA, and the failure became apparent on Monday when Russian energy giant Gazprom withdrew from the bidding. This throws Greece's entire privatization program into chaos. Now Greece will (theoretically) have to find another way to make up for the 1 billion euros, if it's to meet its bailout terms.
All is well in Greece, don't worry!
Of course there were no bids for $1 Billion.
The vultures/global oligarchs are only interested in paying pennies on the dollar for their spoils.
I think Greece should attack Troy with a big wooden horse, that should fix things......maybe not.
China slowdown will reduce cost in suicide factories making goods for US companies ... bullish.
Are high end booze and chocolate really staples? I would say more consumer discretionary. Rice is a consumer staple not Remy Martin.
Anyway - the consumer discretionary, luxury brands sell to what? the top 1% of Chinese society. As per usual they will probably be the very last to feel the effect of any downturn if they feel it at all.
Haven't we seen, in the rest of the world, that when "slowdown" strikes the wealthy can still afford to buy luxury items? More likely it will be concrete producers who will suffer.
So far it hasn't hit the street in HK. But it will.
And none too soon. Retail rents have gone nuts here, running all the Mom and Pop businesses and restaurants out of the main commercial areas.
These fucking luxury retail brands now think they have to have a show piece store in HK to be taken seriously. We have seen this before.
Long: Black Cat Firecrackers
Advisory Expires: 07/03/13
lol, this will be hilarious. Chinese, unlike most in the west, know how to cut spending down to virtually nothing. And there's no stigma in living with family to save money. Watch the foreign brands crumble.
Mostly all European brands.
Like Häagen-Dazs ice cream?
Here's the thing. Chinese, still very much in living memory went through the whole thing of "chi ku", or "eating bitterness". Strapping down expenses in a time of slowdown or even downturn isn't such a big deal. Housing prices fall... ok. Who suffers? Those who are overleveraged and relying on high rents. Except that in the high-rent cities, in recent years they severely limited the amount of property that can be bought. It won't be a massive loss due to this. Although the mortgage system here is "full-recourse", it's also not legal to kick people to the curbs. As long as they follow procedure and provide documentation to the bank that they are unable to repay, they keep the house, terms are renegotiated, payments suspended until they are able to pay. The VAST majority of Chinese are also homeowners. Even if in the cities they are renting, most migrant workers have housing in the countryside that's outright theirs.
Chinese also save a TON of cash, and not just cash-based savings. A lot of it in assets as well... for a rainy day as well as investment. Thing is, in reality, Chinese know what the hell chaos is, they know how bad it is, no one wants it to ever come back. Notwithstanding the government itself. Government owned banks follow government policy, and the government prints the damned money and sets all policy. Even with that, anyone with 2 eyes in their damned head has seen the government encouraging saving and buying hard assets. Key food staples are still highly regulated by the government, and that's a good thing.
What causes chaos: unemployment does for sure, no doubt of that. But that's only a primer for the real causes. Primarily being homelessless and foodlessness. Empty bellies piss people off. Which is why there are massive food storage facilities that were deployed following 2008. In an emergency, that's opened up, ech one has the capacity to provide for a year and the stocks are rotated. In an economic downturn, chaos won't fill bellies, and the lowest levels bootstrap anyways to save money. What gets hit hardest are the foreign brands that have been jacking up prices to make up for losses in the US and cover up US inflation. Why would they do that? Because allowing US inflation numbers to officially rise, means the US money hose gets shut off. Money hose shut off means an end to their fake valuations, which provides them with inflated valuations which provide leverage in buying up smaller brands that do just fine. It's all a giant shell game based primarily on fraud.
Government strategy in China has over the years, if you have not been paying attention, been focused on building strong domestic brands that are increasingly high quality. In a downturn, they can cut prices and the foreign crap dies. An increase in domestic market share doesn't destroy jobs, it simply shifts them, possibly increasing them as export potential rises for brands that China owns lock stock and barrel. No foreign IP issues, no taking pennies on the dollar in profits for doing all the real work. Because lets get real here.... a China downturn sends the rest of the world into a tailspin at this point. Every country that is engaging in profit raping overseas to conceal domestic numbers gets smacked in the ass... and that's just the way it should be.
Haagan Daz takes a nose dive? It'll be replaced with Baxi. Which is just as good, if not better. US autos get slapped? No worry, yiqi, SFA, etc, etc. Have been building VERY good stuff on the same level for much cheaper for a while now. Hell, I am well off, especially well off by China standards, and we buy basically nothing foreign as it is on a daily basis already. No need to piss away money for what amounts to nothing more than a brand name.
Attenshrun Rall Malrt Shloppers
Swatch - how 1984.
Hey look, an upside to their trade protectionism. Who would have thought that their resistance to companies setting up shop would have any positive effects?
Sad to see the Chinese with money rabidly following the consumptive chimps in the U.S. and Europe.
What a bunch of crazy Baboons we humans are, but we're much worse than monkeys really.
http://www.youtube.com/watch?v=9_EyXPs2_Jk
China, the last bastion of dumbards begging to pay $3000 for a bag that cost $12 to make.
Not quite true. High-end luxury brands are the only ones who don't manufacture in China, so now if you can't afford Italian-made goods, you are forced to buy Chinese junk.
None of these companies have any thing to do with me and my life. Let them get burn.
Link to official slow down article?
There's no reason to expect China to report growth slower than 7%. Its not like maintaining credibility was ever an issue.
So, today I learned that booze is a consumer staple in the orient.
If it were in Russia or Ireland, I could perhaps buy that line....so I'll assume that the author has short positions in the companies mentioned.