Chinese Consumers: Primed to Fuel Growth for Many Stocks

Consider buying companies profiting from the growing ranks of Chinese consumers.

Feb 3, 2014 at 5:17PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you see the growing Chinese middle class driving many companies' growth, and you'd like to add some stocks focused on Chinese consumers to your portfolio but don't have the time or expertise to hand-pick a few, the Global X China Consumer ETF (NYSEMKT:CHIQ) could save you a lot of trouble. Instead of trying to figure out which Chinese-consumer stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on Chinese consumers, sports an expense ratio -- an annual fee -- of 0.65%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This Chinese-consumers ETF has lagged its benchmark over the past three years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why Chinese consumers?
Many companies are chasing Chinese consumers because there are so many of them, they're a growing population, and they're eager to spend. A recent article in The Economist noted that "China contributed more than any other country to the growth in global consumption in 2011-13" and that the Chinese government itself is aiming to boost consumer spending.

More than a handful of Chinese-consumer stocks had strong performances over the past year. Melco Crown Entertainment Ltd. (NASDAQ:MPEL) soared 95%. It's one of relatively few companies operating casinos in Macau, where gaming revenue grew by 18.6% in 2013. Melco Crown Entertainment's new Studio City casino on the Cotai Strip should benefit from its position on a new rail system. Its other projects include the City of Dreams Manila casino, opening soon in the Philippines. With a forward P/E now above 25, the stock is not exactly a screaming bargain, though. International, Ltd. (NASDAQ:CTRP) surged 93% over the past year, benefiting from China's $100-billion-plus travel boom. Still, the stock is down more than 30% from its 52-week high, largely on concerns about tough competition. reports its fourth quarter on February 12. In its third quarter, revenue jumped 31% over year-ago levels (and net income was up 92%), with both numbers topping estimates. The company also forecast a slowdown in its growth rate, and management noted that, "We expect mobile to become Ctrip's most important booking platform in the near future, and we will continue to extend our leadership in the online and mobile travel markets in China." Meanwhile, bears are worrying about a slowdown in China's growth.

New Oriental Education and Technology Group (NYSE:EDU), China's largest private educational services provider, advanced 70%. It recently posted unaudited second-quarter results that featured revenue up 25.6% over year-ago levels, operating income up 102.5%, and enrollment up 11.8%. New Oriental Education and Technology helps Chinese students learn English and prepare for exams. Analysts at Jefferies recently maintained their buy rating on the stock while upping their price target from $36 to $40 because of expectations of continued revenue growth and profit-margin expansion. Analysts at Morgan Stanley did the same, setting a new price target of $38.

Other Chinese-consumer stocks didn't do quite that well over the last year, but they could see their fortunes change in years to come. Youku Tudou (NYSE:YOKU), with its streaming video service often compared to YouTube, gained 25%. It is growing briskly, with advertisers spending more, but its shares dropped some in August when management tempered expectations a bit. In Youku Tudou's third quarter, revenue surged 14%, while its bottom line approached profitability. Some worry about its competition with search giant Baidu.

The big picture
If you're interested in adding some stocks focused on Chinese consumers to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from this segment that much easier.

Another way to profit from the rise of Chinese consumers
U.S. automakers boomed after WWII, but the coming boom in the Chinese auto market will put that surge to shame! As Chinese consumers grow richer, savvy investors can take advantage of this once-in-a-lifetime opportunity with the help from this brand-new Motley Fool report that identifies two automakers to buy for a surging Chinese market. It's completely free -- just click here to gain access.

Selena Maranjian, whom you can follow on Twitter, owns shares of Baidu and International. The Motley Fool recommends Baidu, International, and New Oriental Education. The Motley Fool owns shares of Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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