Tuesday, March 20, 2007

Global Stock Markets

Global stock markets have not performed particularly strongly over the past few weeks. I’m going to take this opportunity to offer my thoughts on some stocks that will be affected by the Chinese economy. It feels like every company in the world is counting on China to deliver growth in the coming years. However, some are clearly succeeding more than others. Here are a few picks from my own personal experience:

Carrefour – Okay, I’m biased. But Carrefour has done really well in customizing both the product selection and retail format to meet the demands of the Chinese shopper. In the US, I love Wal-Mart and Target. Here, it’s Carrefour all the way.

Ikea – I've been to the Ikea in Shanghai; it’s amazing. First, it appeals to the Chinese shopper in being cheap, but somehow still name brand. Second, its biggest drawback in the US, the need to assemble your furniture using those ubiquitous Ikea hex wrenches, is eliminated here due to low labor costs. You can pay Ikea to deliver and assemble the furniture for 30 RMB.

It's just like an Ikea anywhere else: crowded, filled with brightly colored furniture, and smelling like Swedish Meatballs. Too bad Ikea is a private company. They are probably riding the China housing boom more than any other company.

What companies do I think are less likely to benefit from a stronger China?

McDonalds – McDonalds is fundamentally an American company. They sell burgers and fries. Chinese people want chicken and corn. Is it still McDonalds if the menu is completely different? Do people still care that Sprite is owned by Coke when they buy it? I don’t think so. Unless McDonalds forms a different brand to serve the Chinese market, I doubt they will grow substantially.

Boeing Asia is the largest market for Boeing planes. Seemingly every flight in Japan uses a 747, while many domestic flights in China are on 777s and Airbus 330s. The China market for airplanes is poised to grow rapidly as airlines replace their Russian Antonov hand-me-downs for modern planes. There is no way that the Chinese government is going to allow sales and funds for research and development to flow to an American company supplying US warplanes and Japanese passenger aircraft. I’ll bet that despite the demand for highly profitable wide body planes like the 747, China’s growth will not benefit Boeing as much as Airbus (thanks to its A380) and the still nascent domestic builders.

No comments: