Feature: China reopening beneficiaries

European Fund (BFRT350), estimates that as China reopens there will be ‘roughly 150 million outbound Chinese consumers returning, with many planning to visit Europe. Holdings in our portfolio that could benefit are luxury conglomerate LVMH, and Amadeus (AMS:BME), a Spanish business that provides technology solutions for the travel industry’.

Stotzel says Amadeus ‘uses its web across the travel industry to aggregate data and ensure things operate smoothly. The data analytics used to optimise the procedure of booking a flight, travelling to the airport, flying and staying in a hotel is very powerful. The company suffered through Covid, but it left the two biggest competitors in weaker positions and Amadeus is gaining material market share’.

OPPORTUNITIES IN SNEAKERS & CAPPUCCINOS

Also geared into the China reopening story are two of corporate America’s best-known brands, Nike (NKE:NYSE), the world’s largest sportswear company, and Seattle-based coffee roaster and retailer Starbucks (SBUX:NASDAQ).

China is Nike’s third biggest market by sales, where the sneakers-to-soccer balls behemoth does face competition in China from homegrown competitors including Anta (2020:HKG) and Li Ning (2331:HKG), the latter founded by the eponymous former Olympic gymnast Li Ning.

But neither brand has the international cache of Nike, which offers investors a great way to play trends towards health and fitness, the casualisation of fashion and the growth in athleisure.

Based on Stockopedia data, Nike is expensive, shares swapping hands for 37.1 times forecast

2023 earnings falling to 29.3 times on 2024’s estimates, but we believe Nike merits this premium as it will remain the world’s preferred sportswear brand for years to come given its strong brand, scale and digital savvy.

Second quarter (20 December) sales and earnings smashed analysts’ estimates as sales in largest market North America surged 30% higher, offsetting weakness in China, where quarterly sales dropped by 3% year-on-year. Nike was set to post third quarter results as Shares went to press on 21 March.

Behind the US, China is the second biggest market for coffeehouse colossus Starbucks, whose sales and earnings in the first quarter ended 1 January 23 fell short of analysts’ estimates as Covid-related disruption in China impacted international sales.

While Starbucks generated impressive same-store sales growth in the US, its biggest market, comparable sales slumped 29% in China, the Flat White-to-Peppermint Mocha seller’s second biggest market, where it has over 6,000 stores and counting.

Starbucks’ shares aren’t cheap, trading on 29.2 times forecast 2023 earnings according to Stockopedia, but that rating drops to 24.3 times estimated 2024 earnings and there is scope for positive earnings surprises as the progressive dividend payer laps easy China comparatives.

Starbucks’ founder and interim CEO Howard Schultz handed over the reins to well-regarded former Reckitt Benckiser (RKT) boss Laxman Narasimhan in March.

By James Crux Funds and Investment Trusts Editor