I met Andrew Beal of the Henderson TR Pacific Investment Trust yesterday. He had just read an article I had written about how we should all sell emerging markets and buy Western markets (Sell East, buy West – it is my trade of the decade).
“I hope”, he said nervously as we got our coffee, that “you aren’t going to give me a hard time.” “What, me?” I said. “Of course not.”
Anyway, it turned out that he “wouldn’t entirely disagree” with the general premise that developed markets would outperform emerging markets over the next few years. After all, they already are – and if we know anything about markets, we know that their performance is almost entirely uncorrelated to economic growth.
However, this doesn’t appear to bother him at all – he is he says more a micro than a macro man: he looks at stocks, not economies. So while he might worry about China’s economy being a tad overheated (I think it is one of the greatest bubbles ever, but we agreed to disagree on this one), and its market being a tad overpriced, that doesn’t mean he hasn’t managed to find enough stocks he likes there to take up going on 50% of the portfolio.
I’m telling you all this simply as a warm up to telling you about Beal’s number one stock pick in China – C-Trip, one of China’s top travel agencies (www.Ctrip.com). It sells flights, hotel beds and package holidays. A lot of them. Note that around 50 million Chinese now travel abroad every year with 3.67 million trips made to Europe alone in 2010.
But that’s nothing next to where the numbers are expected to go: by 2020 the China Tourism Academy expects 100 milliion Chinese to holiday abroad every year, making the country the world’s fourth-largest source of outbound tourists.
That spells opportunity for the rest of us, of course. Note that even CLSA’s Russell Napier, a China bear, thinks a good way to get rich might be to own hotels in the kind of European capitals the Chinese like to visit.
And a new book just out from Karl Gerth of Oxford University (As China Goes, So Goes the World) takes the idea of catering to Chinese demand further: not long now, says Gerth, and “the tastes and desires of Chinese consumers will have to be at the forefront of every successful shop owner’s commercial considerations”. Many Bond Street shops already take payment in renminbi, and within a matter of years everyone else will too. Indeed, all Chinese package tours to London already include a stop off for luxury shopping.
But while we might make something out of selling the Chinese stuff in their own currency when they get to our weedy Western cities, the real money will most likely be made by those arranging their trips.
So if you believe in the Chinese miracle (which regular readers will know I do not) and in the Chinese travel boom, C-Trip is as good a way as any to get exposure. It doesn’t, as Beal admits, look particularly cheap – even on his numbers, which give it a forward p/e ratio of 20 times (Bloomberg puts it at more like 27 times). But given that it is likely to grow its revenues by 30-40% a year some investors may consider it a price worth paying. It is also listed on Nasdaq (CTRP).