There’s a huge change coming to China, and it could mean big stock returns if you own the right companies.In response to widespread public protests by citizens frustrated after years of being locked down, the Chinese government recently announced it’s reversing its zero-Covid policy to unshackle the economy.
Next, how much extra growth will the change produce? It could add three percentage points to yearly growth, taking annual GDP up to 5%-6%, says Charlie Wilson, portfolio manager at the Thornburg Developing World Fund THDIX, -0.05%. Focus on two types of companies It’s best to think of two categories of reopening plays, says Wilson at Thornburg. 1. Companies that benefit directly from reopening because people are out and about, and are interested in spending because they’re more certain about their incomes. 2. Economically sensitive companies that benefit generally because growth picks up. Let’s start with a few names in the first category.
Think of it this way. At the end of 2019, the company had 9,000 stores there. By the end of this year, it will have around 13,000 stores. That’s nearly a 50% increase in earnings power, but the stock is up only 26%, trading recently at $57 compared with $45 in 2019. This analysis doesn’t account for the benefit of greater efficiencies at newer stores, says Wilson.
Four to consider here are the e-commerce platforms Alibaba BABA, +0.43% and Pinduoduo PDD, -0.09% ; search-engine company Baidu BIDU, -0.45% ; and online and mobile game company Tencent TCEHY, +0.62%. They’ll all benefit as growth picks up and consumers spend more, delivery services get back to normal, and business advertising picks up.
It's a few months off yet. There's the opening and rising infection phase to get through first. After that there will be the post covid boom. And after that? Welcome to the 8% inflation club 😎
Care to revise your views - covid?
It always does
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