Tags: China | corruption | luxury | consumer

MarketWatch: How to Profit From Chinese Corruption Crackdown

By    |   Tuesday, 16 September 2014 03:17 PM

With a little imagination, it may be possible for U.S. investors to profit from China's crackdown on government corruption.

MarketWatch contributor Michael Brush said there are three companies whose products figure prominently in the Chinese anti-corruption campaign, and whose share prices have taken an unfair hit.

He identified them as Diageo, LVMH Moet Hennessy Louis Vuitton and Swatch Group.

“Their luxury liquor, handbags and watches, are all popular in China. They make for ideal gifts, the kind that are suitable for greasing the palms of government officials in business deals.”

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

As a result, he said deal maker have cut back their gift-giving of Diageo’s Johnnie Walker Black Label scotch, LVMH’s Hennessy cognac and Louis Vuitton handbags, and Swatch’s Omega watches.

While Chinese sales of those products have withered in recent months, Brush said the corresponding fall in the three stocks, ranging from 8 percent to 17 percent, is way overdone.

“Now they look like bargains, and contrarian plays on excessive worries about the far-reaching impact of China’s corruption crackdown.”

He said Diageo and LVMH trade at about 16.5 times estimated 2015 earnings, and Swatch goes for about 14 times earnings, all at handsome discounts to the average European consumer staple stock.

Neither China’s corruption crackdown nor Europe’s current economic weakness will last, which will set up the three stocks’ revivals, according to Brush.

He said growing middle classes in emerging markets should help Diageo’s sales, that LVMH’s brands have been around for centuries and are unlikely to be diminished over the long run, and that Swatch is such a well-managed company it will rebound in China over time.

Businessweek reported a new Barclays study showed nearly half of Chinese millionaires, possibly a key group consuming Diageo, LVMH and Swatch products, would like to emigrate to other countries.

The favored destinations of those millionaires would be the United States or Europe, according to Businessweek.

The rich Chinese surveyed said better schools, a better economic environment and improved health and social service benefits were the main reasons they would like to move, and presumably they would like to bring their consumer consumption wealth with them.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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With a little imagination, it may be possible for U.S. investors to profit from China's corruption crackdown.
China, corruption, luxury, consumer
373
2014-17-16
Tuesday, 16 September 2014 03:17 PM
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