A Tale of Two Chinas

Nike surprised the market last week with a 30% increase in Chinese sales. The resulting 8.6% weekly share price rise took the gain for 2015 so far to 30.0%. The Nike market performance (shown in yellow) has been the mirror image of the Caterpillar outcome (in blue). Last week, the Caterpillar share price fell another 9.6% to bring to 29.0% the fall during 2015. The performance differential signals that the long-awaited pay-off for companies positioned to take advantage of the growth of Chinese consumption is becoming meaningful. Similar performance disparities will go beyond sectoral distinctions between resource and infrastructure oriented companies, on the one hand, and consumer oriented industrial and financial companies, on the other. Within non-resources companies, differences are likely to reflect relative successes in implementing business strategies. The maturation of the Chinese economy will increasingly undermine macro-themed generalisations about Chinese exposure. Forecasting GDP movements, which may have contributed to investment success in the past, will have lost some potency as strategic business positioning becomes a more important determinant of investment outcomes.