A Way To Invest In China

Jim Trippon  |

Sometimes investors can have apprehensions about investing in a new area. After all, if you’re use to following certain markets and potential investments, usually you become familiar with this and it provides a certain degree of comfort. It’s understandable, and it’s not a bad thing. The more you are familiar with any avenue of investments, whether it’s stocks, bonds, real estate, or any other investment vehicle, you are likely to do your homework, become knowledgeable, and do a better job of researching, taking care of your money, and likely getting better results for your effort.

But sometimes it pays to branch out into new things or new areas with investing, as with anything else. It’s that way with investing in China. Many US investors still find China stocks or investing in anything to do with China to be out of their comfort zone, even mystifying. Not only need that not be the case, it probably isn’t as true as they think. The reality is that many of the large blue chip type stocks that US investors flock to have a large international presence for their business, and part of this global reach is in China. The roll call might surprise many. And what it means for investors of course is opportunity to profit.

KFC is already in China in a big way
(photo from Yum China website)

Names You Know

Names of big blue chips such as Coca-Cola (KO), Apple (AAPL), 3M (MMM), and others are familiar to most. 3M, in its latest quarterly report delivered in August, posted  revenue of $7.7 billion, nearly a third of which, or 30.1%, $2.3 billion, was from its Asia-Pacific region. Asia-Pacific sales almost matched the $2.5 billion 3M brought in from the US, and outstripped the remaining revenues from other global markets. Asia-Pacific sales growth was 11%, US growth 8.7%. Is 3M a China company? Well, we’re exaggerating, but 3M is certainly a global company with a growing presence in the China market. Back in April of this year, 3M announced a joint venture with the Heifi Hi-Tech Industrial Development area to produce photovoltaic solar materials. Heifi is an industrial city in central China that lies between the Yangtze and Huaihe Rivers, so 3M is there.

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Coke’s Global Brand

While many businesses and stocks struggled through the US recession, Coke just seemed to keep chugging along. Coke has a product that everyone seems to want and use and it illustrates the meaning of the word ubiquitous: Coke is truly everywhere. Its global brand reaches far beyond the US. Coke has a vigorous program of developing its product reach in emerging markets such as Russia, India, and of course, China. Coke invested $3 billion in development in China from 2009 to 2011, and plans on putting $4 billion more in the next three years.

Procter & Gamble’s There, Too

How about another name you know? Procter & Gamble (PG), the giant, US-based global consumer product juggernaut has a China presence. P& G does roughly $80 billion in worldwide sales and claims two dozen branded products that each individually bring in at least $1 billion in revenue. These are things we all use, like toothpaste, razors, and detergent. You can’t get any more mundane than this. Yes, P& G is in China, with a growing market share. P & G had a five-year plan announced in 2010 that would bring their products to an additional 1 billion customers in China and India. It has created a product, Downy Single Rinse, for use in emerging markets where consumers have limited access to water for washing clothes.

A China Champion

Probably one of the most deeply embedded well-known US based companies in China is Yum! Brands (YUM). Another consumer stock that will benefit from China’s growing middle class prosperity, China now comprises more than 40% of Yum’s revenue. The fast food chain has a significant presence with its KFC stores, and Yum’s overall sales in China skyrocketed in the last quarter more than 30% year over year.

Yum China is based in Shanghai, and the company opened 500 new restaurants in mainland China last year alone. While Pizza Hut became the first chain to introduce western style casual dining to China in 1990, along with its pizza, there are now 531 Pizza Huts established. KFC preceded Pizza Hut as it entered China in 1987, and began franchising in China five years later. KFC now has a staggering 3,300 outlets in China, in over 700 cities. Yum plans to add as many as 500 additional KFCs in the coming year, with long term plans for 20,000 restaurants.

At the Great Wall: In 2004, Yum China celebrated their 1,000th restaurant
(photo from Yum China website )

Make Money With The Familiar

You as an investor can still make money with these stocks, and there are dozens if not hundreds more. In fact, it’s not a bad way for an investor to get to know the China market and get their feet wet with some introductory investments. There is certainly nothing exotic or frightening about these companies. They have readily understandable business models, easily accessible financial information, and they fit nicely with most investors’ comfort zones. But I’m certain of one thing. Once an investor buys into any of the stocks doing major business in China and begins to reap the rewards from China’s extraordinary economy, he or she will feel the urge to do more, to investigate many of China’s own companies and stocks. That’s great. That’s how your grow as an investors while your grow your profits, too.

Committed To Your Global Profits,

Jim Trippon

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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