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Big Firms Express Optimism in China Business

Big Firms Express Optimism in China Business Big Firms Express Optimism in China Business

Companies that do business with China have gone from pariahs to market darlings in less than half a year.

An index of firms in developed markets that get the most sales from the Asian nation, including Qualcomm Inc., Yum! Brands Inc. and mining giants Rio Tinto Group and BHP Billiton Ltd., has risen 33% since a low in February, outpacing global shares by the most in almost a year, data compiled by Bloomberg and MSCI Inc. show. That’s some recovery for a gauge that slumped as much as 35% in less than a year.

Signs that China’s economy is stabilizing have helped restore confidence in global companies tied to it. The effect is arguably amplified amid worries about the efficacy of central bank stimulus from Europe to Japan, as well as concern that the fallout of British secession from the European Union will start to hurt economic growth.

“For the first time in ages, we’re actually getting positive surprises out of China,” said Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen. “CEOs across the world are also telling us that things aren’t too bad over there. That has helped us reduce the fear of an imminent global recession.”

Morgan Stanley estimates European companies get about 8% of total revenue from China, while Japanese firms derive about 6.6% of sales from the country. For American companies, it’s 3%.

  GDP Rising

Data has signaled China’s economy is responding to increased policy support, with gross domestic product rising a better-than-forecast 6.7% in the three months through June. China’s industrial production and retail sales for that month also exceeded projections, while the services industry improved in July.

That has boosted metal prices and shares of miners including BHP and Rio Tinto, just as updates from companies have signaled rising consumer spending in China.

Yum, the fast-food chain which is spinning off its Chinese business, said last month second-quarter sales grew 3% in the country and that both its Pizza Hut and KFC restaurants are off to a good start in the current period.

Qualcomm, the biggest maker of semiconductors that run smartphones, said it’s been gaining market share in China and forecast profit and sales that may beat analyst estimates.

Nissan Motor Co. predicted sales growth for its premium brand will pick up in the largest auto market, while Honda Motor Co. reported better-than-projected profit on higher demand in the US and China.

Adidas AG, whose sales have soared in the country, last week increased its 2016 profit forecast for a fourth time this year. Swatch Group AG said it has seen a “clear improvement” in mainland China, especially for its higher-end watches. Volkswagen AG noted an increase in vehicle sales there in June, while Daimler AG predicted demand in that market will probably “recover significantly” this year.

 

Financialtribune.com