Haves vs. have-nots

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China Is Looking Pretty to Cosmetic and Fashion Stocks

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.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.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.

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