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The question of how to game China’s economic reopening is becoming more interesting with the nation’s mobility and traffic measures flashing very hard for the Chinese New Year holiday as consumers move. go out on the streets again. Some analysts see China’s reopening still in the early stages, with up to $1 trillion in excess domestic savings set to support consumption and growth.
Investors have been snapping up a few sets of China reopening stocks as they reckon the Chinese market could outperform the US any time soon. In retail, some of the obvious beneficiaries that have already rallied include Luckin Coffee (OTCPK:LKNCY), up 60% since November, and Yum China (YUMC) up 30% pop. However, Wells Fargo sees that there are still plenty of opportunities for investors with the consumer momentum just getting started. Of note, luxury players such as Swatch (OTCPK:SWGAY), Burberry (OTCPK:BURBY) and Richemont (OTCPK:CFRHF) have all signaled strong traffic trends in January.
“With the Lunar New Year kicking off on January 21, we believe reopening against multiple quarters of easier regional comparisons will benefit companies with the most exposure,” analyst Ike Boruchow updated.
The firm pointed to Nike (NKE), Tapestry (TPR), Capri Holdings (CPRI), Farfetch (FTCH) and Canada Goose (GOOS) as some of the apparel sellers with China exposure ranging from 12% to twenty %. Other apparel names that could be favored by China due to more than 5% exposure include Lululemon (LULU), Under Armor (UAA), Gap (GPS), Kontoor Brands (KTB) and PVH (PVH).
Sure, Macau casino operator Las Vegas Sand (LVS) has 68% revenue exposure to China and Wynn Resorts (WYNN) has 40% exposure, but both stocks have risen strongly and it’s possible who are already pricing in a short-term boom in traffic. Within the leisure sector, Goldman Sachs believes that InterContinental Hotels Group (IHG) may be a low-key choice, as the company will benefit from an expected increase in travel with its Holiday Inn chain across China. The firm noted that Chinese travelers often look for familiar brands when heading abroad. There is also Trip.com (TCOM), which has reported a large increase in travel activity in January. Chinese travel stocks still look favorably on Wall Street despite a 48% rally in the past six months and have a strong Buy Search Alpha Quant rating that stands out compared to other online travel stocks.
Within the broad consumer sector, some other companies with a high China business mix include Domino’s Pizza (DPZ), Estee Lauder (EL), Aptiv (APTV), and Starbucks (NASDAQ:SBUX). Cowen analyst Andrew Charles believes China’s recovery represents a major catalyst for Starbucks shares this year with the 100% company-owned business model. China is also anticipated to give SBUX the earnings boost it needs to beat its recently issued long-term guidance.
In Seeking Alpha, author David Zanoni gave a breakdown of China’s other reopening plays, including some of the names in the tech sector. Meanwhile, author Fade The Market believes that Nike is still being undervalued by China’s reopening to the upside.
