Investment opportunities in China are shifting away from commodity-driven themes to the domestic consumption space, which is set for sustainable growth as the country undergoes a rebalancing of its expectations in its GDP and fixed-asset investments, says Eric A. Brock, a Partner and Research Director for Clough Capital Partners, L.P.
“So in 2012, we are starting to see leading indicators in China improve in terms of growth. Credit growth is bottoming, and consumption remains fairly robust with retail sales growing around 15% or so,” he said. “We just couldn’t be more constructive on opportunities in the consumer sector.”
Brock likes Vinda International Holdings Limited (3331.HK), a leading tissue paper company in China, because as incomes grow, tissue paper, such as toilet paper and paper towels, is going to become less of a luxury. He says Vinda is building its brand in the early stage of market development, and he sees the company growing its earnings 50% year over year for 2012 and 2013, with the shares now having a p/e ratio of about 19 times.
“According to its CFO, Vinda saw high 20% level growth in the first quarter as compared to last year, and we think that’s a level that can be maintained over the next couple of years. And this is really a market penetration story; the company is now getting scale and developing a brand image, which is very important,” Brock said.
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