A soft post-coronavirus economic activity in China could lead to more stimulus in China, a move by Estée Lauder (EL), Starbucks (SBUX) and Wynn Resorts ( WYNN). These companies are part of the Club’s portfolio with significant exposure to the world’s second largest economy. Various messages Worries about the Chinese economy have already forced the central bank of China to cut its key policy rate. Tuesday’s rate cut was the first since August after China’s state-owned bank cut interest rates for depositors last week. China’s economy has struggled to reach its full growth potential since the government abandoned its zero-corona policy. China’s recovery is much slower than what other major countries experienced when they lifted pandemic restrictions. It shows up in many of China’s key areas. Real estate activity, which is estimated to account for nearly 30% of China’s gross domestic product (GDP), is causing sluggish home sales, unfinished projects by developers and halting mortgage payments for homebuyers. China’s new home sales rose 11.8% year-on-year in the week ending May 28, a sharp slowdown from 24.8% in the previous week, according to a report by Nomura’s chief China economist Ting Lu. Moreover, China’s new home prices fell 0.01% month-on-month in May after rising 0.2% month-on-month in April, according to survey data from the China Index Academy. China’s labor market is also struggling. The urban unemployment rate for 16- to 24-year-olds rose to a record 20.4% in April, about four times the broader national unemployment rate, according to official Chinese data. Yet Chinese consumers have proven resilient in the face of these widespread economic challenges. According to the National Bureau of Statistics of China, China’s retail sales of consumer goods in April increased by 18.4% year-on-year, up from 10.6% in March. Earlier this year, China’s National Bureau of Statistics reported strong growth in the first quarter of China’s economy, surpassing expectations at 4.5%. The pace of growth was the highest since the first quarter of 2022, driven by increased spending by Chinese consumers. Performance of Club Stocks Our recent earnings results from our China-listed companies show that Chinese consumers are holding up despite a slowing broader economic recovery. Gaming company Wynn Resorts posted a strong first quarter in early May, driven by a recovery in Asia’s gambling capital Macau, and strong consumer spending on travel and experiences will continue in the coming quarters. It gave me the confidence to continue. It also added a WYNN position earlier this month after a new wave of coronavirus hit China, sending stocks down. However, we see this pullback as a buying opportunity and have upgraded the stock’s rating to 1. Coffee giant Starbucks reported strong second-quarter results last month, driven by China’s first positive growth in almost two years. But shares have fallen 15% since early May on concerns about a sluggish economic recovery. We bought SBUX stock at the end of May. Luxury beauty brand Estée Lauder reported a more mixed fiscal third quarter in early May, weighed down by a slow recovery in its overstocked Asian travel retail business. The result was terrible guidance and EL stocks fell sharply. At the time, we believed the inventory drawdown was excessive, but we knew it would take several quarters to eliminate excess inventory. Then, in mid-May, I bought a bit of that weakness. In conclusion, Beijing has taken consistent and steady actions to boost economic activity to accelerate economic recovery. We see this as a positive sign for consumer spending. At the same time, the continued recovery in certain sectors of the Chinese economy also means that there is uncertainty, which will put pressure on some Chinese consumers, especially those from low-income households. We recognize that it is possible. However, recent retail sales data out of China clearly shows that consumer demand has stalled, and investors like us believe there is still room for further upside for companies operating in China. suggests to. The imminent potential of Chinese government stimulus, coupled with consumer resilience, has led Estée Lauder to move toward a yet-to-be-fully-realized post-coronavirus reopening in China. , Starbucks and Wynn Resorts. . China is a growth market for companies, and improving economic activity should be a catalyst for these stocks. (Jim Cramer’s charitable trusts are Long EL, WYNN, and SBUX. See here for a full list of stocks.) 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A customer with a 100 yuan bill at a market in Beijing.
Jason Lee | Reuters
A softening of China’s economic activity after COVID-19 could bring more stimulus to China, which would be a boost for China. estee lauder (EL), Starbucks (SBUX) and Wynn Resorts (win). These companies are part of the Club’s portfolio with significant exposure to the world’s second largest economy.
