There’s some trouble in China right now. A look at a host of Chinese economic data — from manufacturing to GDP and more — paints a grim picture about the nation.
This trend has naturally acted as an anchor on Chinese equities. China blue chips including telecom China Mobile (NYSE:CHL), Internet giant Baidu (NASDAQ:BIDU), energy stock CNOOC (NYSE:CEO) and financial stock China Life Insurance (NYSE:LFC) are all decidedly in the red year-to-date despite a double-digit rally for the domestic S&P 500 Index.
At the same time, however, there appears to be big growth in a specific kind of Chinese market: namely, high-end fashion and cosmetics focused on the wealthy China consumer.
Handbag and accessories giant Coach (NYSE:COH) just gapped up 10% recently on strong earnings, driven largely by better-than-expected China sales. And in March, when jewelry giant Tiffany & Co. (NYSE:TIF) reported strong fourth-quarter earnings, brisk luxury sales in China were fueling the fire there, too. Tiffany is up more than 25% year-to-date thanks in part to these numbers.
Two other stocks that are seeing big China growth despite other industries facing headwinds there are cosmetics heavyweights L’Oreal (PINK:LRLCY) and Estee Lauder (NYSE:EL). Both stocks have outperformed the market significantly in 2013 on strong luxury cosmetic sales to the China consumer.
To be clear, this focus on high-end fashion and makeup is not a sign that broader consumer stocks in China are also doing well. Consider the Global X China Consumer ETF (NYSE:CHIQ) — made up of China-based firms, including vehicle manufacturers, processed food companies, retailers and media stocks — is 5% in the red so far in 2013.
This is a story of haves and have-nots, and the rich are a growth industry in China … even if a narrative of slowing growth takes the wind out of consumer stocks focused lower down the socioeconomic ladder.
- China’s consumer stocks are overvalued, says Jessie Guo of Jefferies. (Bloomberg TV)
- China is the world’s second largest market for luxury cosmetics. (FT.com)
- In contrast to the China bears, Aberdeen says Asia’s growth is too important to ignore. (The Slant)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.