China is today a huge emerging market, with the raise of their middle class being one of the largest macroeconomical processes going on in the world. In 2000, 63% of the Chinese population was considered rural, making the equalent of less than $9000 dollars a year. Today, this number is at just a bit above 40%. It's estimated that in 2050, China will have a full on American style Middle class. These numbers are important, but the specifics are not important. They peak Intrest.
When the middle class becomes a majority in China, it will lead to so many changes in their economy. Cash transactions will fall, media & entertainment revenues will spike, online shopping will raise similar to other developed counties , mobile and internet usage raises quickly and technology will be developed and implemented faster. These trends affect tons in financial markets, and it's been my focus for the last 4 months.
JD.com, Tencent, Alibaba, IQIYI, Baidu. All these companies that you hear off all the time all over the financial world the second China comes up. To analyze companies that provide services, you have to do estimates about their possible valuation must be multiplied by the development of China. As the market increases, so does revenues and afterward profits. Today, according to JingDongs research in their latest reports, Chinese retail market is increasing 11.3% annually, along with e-com that increases 21%. On top of all of these companies natural growth, they see this raise of the middle class and therefore increase in possible market size.
As a last note, there is an Intresting catalyst I'll do a write up on later, that will most likely happen during the coming year. As of today, all of these companies mentioned above are traded through international holding companies. They do not trade in the Chinese markets as well, but only though these American exchange posted cayman island / Marshall Island style holding companies. The Chinese government plan to during the coming year let these companies trade on Chinese exchanges, allowing all the Chinese investors to be let lose at the giants of their own country. Allowing these companies onto the Chinese stock exchanges would increase the investments into these companies, forming what will perhaps be a great catalyst for the companies. Today it's hard to know though, as the specifics are not nailed down. I am currently researching it myself trying to calculate make estimates, and will post my findings once I belive them myself. I'll be honest, it's hard. My mandarin reading is also weak. Many times weaker than my near worthless speech.
So what's the point of this post? Well, to give out some information which isn't obvious. Also my opinion that these companies are all worth holding, if you are willing to hold not only a risky growth company, but a risky growth company within a risky growing emerging market. If you are looking for something new, exciting, rewarding and challenging to research and understand, do like me and delve into China. It's been very challenging, but my models are starting to feel somewhat close to reality.
I have during these last 2 months increased my position in China to 31% of my portfolio, with the largest position of my holdings being in JD.com and a lot of love for the newcommer IQIYI
Thanks foe reading! Happy to discuss
A few sources to read:
https://www.google.se/amp/s/amp.businessinsider.com/chinas-middle-class-is-exploding-2016-8
https://chinapower.csis.org/china-middle-class/
JingDong JD.com reports
Submitted May 25, 2018 at 11:40AM by lykosen11 https://ift.tt/2IO5RDZ
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