Stock Market Crash Presents China Investment Opportunities
Stock-Markets / Chinese Stock Market Sep 30, 2008 - 10:00 AM GMT
Tony Sagami writes: The crash in the Dow is not going to be just a one-day event. It's going to continue, and it's going to be ugly.
But it's also going to open up some great buying opportunities — gems selling for a fraction of their true value.
And, when the dust settles, I'm going to be looking for those gems in Asia, where there's very little consumer debt, where the overwhelming majority of home buyers don't use mortgages, and where economic growth is driven mostly by healthy domestic demand.
Every time I travel to Asia, I'm on the lookout for new and exciting investment opportunities. And I found several during my last trip.
I also have a few oldie-but-goodies in the Asia Stock Alert portfolio. One of them is a company I've mentioned before here in Money and Markets — New Oriental Education.
I still consider this company — a Chinese education company that provides services like English language classes — one of the very best opportunities I have ever found.
And my bullishness was confirmed after my latest visit to Asia.
I had attended New Oriental classes in Shanghai and Shenzhen before, but I had never visited its home office in Beijing. In general, I find I learn a lot more when I'm in the field instead of office visits — but that absolutely wasn't the case this time. Before my visit was over, I had discovered ...
Six Very Telling Surprises that Support the China Mega-Trend!
While many investment professionals never even visit the companies they recommend, I analyze every last detail. And I often see important information in small details that nearly anyone else would completely overlook.
That's exactly what happened when I visited New Oriental this last time around. Not only did it confirm my strong belief in the company's investment appeal, it also reaffirmed the over-arching mega-trend that I consider the most powerful money-making force for at least the next decade.
Here's what I saw ...
Surprise #1: Double-decker bike racks. I've traveled all over Asia, but this was the first time I have ever seen a double-decker bicycle rack.
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| Some people see a bunch of bikes ... I see the Asian Megatrend! |
The New Oriental office building included its executives as well as three floors of classrooms, and the crush of students is so strong that it had to come up with a way to accommodate all the students' bikes. That was my first clue that business was pretty darn good.
Surprise #2: Heck with the Olympics. I was in Beijing during the Olympics, so I expected the New Oriental classes to be lightly attended, if not empty. Boy was I wrong! Every class that I poked my head into was packed to the rafters.
Heck, if these kids weren't skipping class to head to one of the biggest events that will ever happen in their home city, that shows you an awful lot about the Asian work ethic and the extremely strong demand for the product of education.
Surprise #3: KFC for lunch. In order to maximize class time, the students didn't leave for lunch. Instead, lunch is brought in for them.
The day I was there, every student had a box lunch from KFC. And that's another strong piece of anecdotal evidence for the brands that have been riding Asia's strong consumer boom.
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| Registration activity was bustling the day I visited! |
Surprise #4: Long registration lines. The registration desk had a steady stream of students signing up for new classes throughout the day.
I talked to one excited new enrollee who said it took him three years to save up the $1,800 RMB (about $260 U.S. dollars). That's what I call committed customers!
Surprise #5: Big bookstore business. New Oriental's bookstore was just as busy as the registration desk. The most popular books were Chinese versions of preparation guides for the SAT, GRE, GMAT, and TOEFL (Test of English as a Foreign Language), as well as college-specific books.
As you can guess, the thirst for knowledge is very strong in Asia ... that bodes well for New Oriental's business and for the rest of the region's companies.
Surprise #6: More M&A on the way. New Oriental hired veteran U.S. investment banker Joseph Kaufman to head its Business Development (acquisition) department.
So even though the company has rapid organic growth, it's now going to supplement that with accretive acquisitions. This is also part of a larger trend that I've told you about here in Money and Markets — the Chinese focus on gobbling up attractive assets wherever they may be found.
Bottom Line: All the Evidence Supports My Belief that China Will Continue to Prosper
I've been in the investment business for almost 30 years, and even after traipsing around Asia for years, New Oriental is still one of the most exciting businesses I have ever run in to.
But it's just one of many great opportunities in China right now.
The mainstream media loves talking about how the Chinese economy is going to fizzle out now that the Olympics euphoria is in the past. Here's my response ...
I ... DON'T ... THINK ... SO!
They're dead wrong and here's why: China spent about $2 billion to build Olympic sports venues like the Bird Nest and Water Cube and another $40 billion on Beijing infrastructure (roads, airport, subways, etc.).
But very few of the Olympic dollars were invested outside of Beijing. Consequently, those investments will continue to benefit the country, even after the Olympics is over.
The China economy gained 11.9% in 2007. And while growth did slow in the first half of 2008, it was still 10.1%!
So let the Chinese boo-birds make their noise. I'll continue doing my on-the-ground research and making my investment recommendations based on what I see with my own two eyes.
Best wishes,
Tony
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