On China concerns - prepare to blow thee over

Because the markets have been so skittish over China, lets prepare to let actualities settle in:


China’s economy posted a 6.9% growth year-on-year in the third quarter of 2015, lower than the 7% in the first half of the year, the National Bureau of Statistics (NBS) announced on Monday.

“This is the lowest growth rate seen in China since 2009, but (and this is a big but), this figure is also better than what was expected,” said Stephen Guilfoyle, managing director at Deep Value, on Monday.

“China’s GDP is growing off of a very large base, so even 6% growth is more than 10% growth five years ago,” Brendan Ahern, chief investment officer of US fund company KraneShares, told Xinhua on Monday.

Even during its slowdown, China continues to grow at a pace that other major economies envy, according to the Wall Street Journal. China’s economy is nearly twice the size it was just six years ago, meaning at lower growth rates it remains a major engine for global consumption and production.

“There is a growing disparity between the traditional drivers of China’s economy and the drivers that will lead the country going forward,” Ahern said. “Industrials and manufacturing continue to face a headwind due to poor global growth while domestic consumption as evidenced by September’s strong retail sales is doing well,” Ahern said.

Retail sales of consumer goods grew 10.9% year on year in September, slightly higher than 10.8% for August, NBS data showed. The figure marked the highest rate of growth since the beginning of this year.

“Growth in services output picked up in the third quarter, marking the fourth-straight quarter of acceleration in Chinese services activity,” Wells Fargo Securities said in a note Monday.

The shift in growth drives from the industrial sector to the services sector has been widely publicized as a policy objective of the Chinese authorities, and these recent figures will thus likely be viewed as a positive development in that regard.

“Chinese industrial production for September did hiccup, and missed expectations,” Guilfoyle said. “September Chinese retail sales, however, printed at their best year on year growth rate seen in 2015.”

Well, duh. We were all told this by Apple’s Tim Cook and reiterated by our CEO at Skyworks.

Consumer discretionaries and services stocks are going to be king this quarter, likely into the future as we now have a boatload of more consumers. So will anything related to telecom and tech. People love their gadgets.

In addition, owners of SKX stock take heart. From the conference call last night:

Our joint ventures in Asia grew by 121.9 percent for the quarter, led by an approximately 175 percent increase in China due to growing popularity of the brand, which has led to an increased franchise opportunity.

Additional Skechers branded stores opened in the quarter include: 41 in China; five in Germany and India; three in Indonesia; two each in Australia, Taiwan, Czech Republic, France, and Saudi Arabia; one each in Brazil, Brunei, Denmark, Ireland, Mexico, Morocco, the Philippines, Russia, South Korea, Sweden, and Thailand. Six stores closed in the quarter.

In addition, Asia has built a young trend business with our heritage Men’s and Women’s Sport styles—that took off in South Korea, and is now embraced by consumers in China, Hong Kong and Southeast Asia.

David Weinberg - COO & CFO
I think what we’re saying is that the numbers that are on the street for 2016 start to seem certainly achievable and if certain things break positively and international continues and we continue our full price and get back to significant growth in the U.S. that there is significant upside to that. I think China continues to grow very-very well.

I would also tell you that we don’t really go through a backlog scenario in China since it’s predominantly retail and now that’s moving into franchising model.

Sam Poser - Sterne Agee
And you said earlier, that you expect China to hit around 200 million this year, is that still moving in that direction?

David Weinberg - COO & CFO

Long SKX