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SOVEREIGN MAN

A Chinese Mega-trend

It normally takes me less than five minutes to pack, even for a three week trip.  In this case, though, I’m having a tough time– too many climate zones in Asia, too many events. I need to cram SCUBA gear, beach clothes, professional attire, and formal wear all into one little suitcase…

… plus leave plenty of room for all the custom suits I’m going to have tailored.

I haven’t been watching the markets much today, and frankly I’m sick to death (no pun intended) of the obsequious eulogizing of the late Senator from Massachusetts, so I’ll refrain from comment.

But in the spirit of my forthcoming Asia sojourn tomorrow, I’d like to pass along a recent email from Christine Verone who sent along her thoughts on an emerging mega-trend in China:

—-
Simon-

I’m excited for you to come; I have an ambitious agenda lined up for when you arrive in Shanghai, so don’t show up here with any jet lag… CEOs, brokers, and government officials are waiting, plus I know you will want to meet with your sovereign fund guys.

By the way, from our earlier conversation I need to clarify something (and please make this change to your website).  From the ‘Gold in China’ article a few weeks ago, it says that Chinese people were not allowed to own physical gold or silver until 2009.

This is not accurate and I think you misunderstood me when you edited the email.  Gold was attainable by Chinese via Panda coins (China’s version of Eagles) or jewelry since the 1980s.  Walking into a bank and buying coins/bars however is a recent phenomenon.

The critical point to understand is that the government has never before pushed gold and silver as an investment vehicle. It has gone from being illegal to being the hottest assets on the market simply because of the government’s marketing efforts.

I’m convinced that this will create significant upside, especially for silver. You should see how people stand in line at banks to buy silver bars now.

The other thing I wanted to discuss is an emerging megatrend on the mainland.  The Chinese are aware they need to decrease their dependence on exports, especially now that American spending power has evaporated.

Consequently, the government has prioritized building up infrastructure and domestic consumption (two things that foreign analysts on Wall Street won’t be able to see). This included Chinese tourism.

The government supports the tourism industry and encourages domestic travel far more than international travel… just watch 20 minutes of the daily CCTV news in China and you’ll begin to understand what I’m talking about– I can just about guarantee that you will see travel/tourism commercials promoting the importance of the ‘travel experience’ in some far off city with cultural flair.

Overall, domestic Chinese tourism is going to be one of the biggest China growth stories over the next decade.  You have hundreds of millions of people now that have enough money to leave their little town, their province for the first time ever.

Plus, culturally, Chinese travel in groups… we’re talking big parties on guided tours. Think Japanese tourists in the US in the 1990s and you’ll have the right idea. Naturally this creates a whole cottage industry with enormous growth potential.

A few months ago, as a play on Chinese domestic tourism, I bought a local company called Airmedia (NASDAQ: AMCN). At just a quick glance, most analysts would simply label it an innocuous ‘digital media provider.’

But if you put boots on the ground here, you’d see that Airmedia dominates Chinese airports and airplanes, particularly related to air travel advertising sector. And by ‘dominate’ I mean they are the exclusive advertising provider for some of the highest traffic airports in all of China.

Also, they’re expanding heavily into gas station advertising– on average, China is adding roughly 3000 miles of highways each year (this is expected to triple)— and its predicted they’ll soon surpass the US, taking the #1 position in terms of constructed expressways.

With so much highway construction connecting rural towns to urban mega centers (thanks to the Chinese stimulus package), there will be a lot of new gas stations sprouting up across the country… and Airmedia recently signed a deal to become the exclusive digital media provider at the state owned gas stations (Sinopec), essentially giving them the lock on road traffic as well as air traffic.

(Ironically, Mcdonalds is also capitalizing on this trend– they have signed with Sinopec to build over 30,000 drive-thru’s at highway gas stations.)

I bought at $3.91 and the stock now fluctuates between $6.90 and $7.20.  Would I buy it now? No. But if it drops below $5, I’ll consider buying more assuming the fundamentals haven’t changed… so keep this one on your radar– the company stands to profit as millions of China’s new middle class take their first family vacations this year.

By the way, when you’re picking up your luggage at the baggage claim in Shanghai, look at the massive flat screen above your head… all the mini TVs, even wall adverts– this is all Airmedia.

– Christine

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Raja Hafify Zaed

    $3.91 to $7.20, good investment

  • Expat X.

    “Mcdonalds is also capitalizing on this trend– they have signed with Sinopec to build over 30,000 drive-thru’s at highway gas stations.”

    Was that 30k figure a typo?

  • http://www.myrchoice.co.cc/ Raja Hafify Zaed

    30K might be a very reasonable figure. 30K is nil compared to China 1.3 Billion population.

  • tool

    It’s china, it’s 1 billion people 30’000 is peanuts.

  • Expat in Asia

    Christine is on to something. Competitors to AirMedia are Focus Media (FMCN) and Vision China (VISN). Investors should take a look at these other players in the advertising space. FMCN is the biggest of the 3 in terms of market cap. A few other companies to look into to play the ‘Chinese tourism’ boom is CTrip (Nasdaq: CTRP), the largest online flight and hotel booking site in China. Think of it as the Expedia or Orbitz of China. Also train travel is going to be very big as China sets out to build the largest network of high-speed trains. One way to play the railroad boom is Guangshen Railway (NYSE: GSH). Lastly budget hotel chains would be a good play. Having lived and traveled all over China for the last several years finding cheap and clean accommodations is not easy. It’s a market opportunity that is being exploited by companies like Home Inns (Nasdaq: HMIN).

  • Anthony

    Simon, While this is not related to China whatsoever, you may find it interesting.
    Yesterday, Aug29, I flew from DFW to PTY. Waiting in the jetway were no less than 15 fully uniformed US Border/Customs agents. I fly international 5-6 times/year from the US and have never seen anything close to this level of presence or “intimidation” – usually 2 officers or none. As they were looking through my passport they asked a series of questions,mostly standard but completely invasive.
    1. Where do you live?
    2. Why are you going to panama? To do what? for how long?
    3. What do you do for a living at home?
    4. are you carrying any “cash” or “bearer bonds” in excess of $10k [no mention of other instruments, etc]
    5. How much cash are you carrying?
    6. Are you bringing anything with you for someone else in Panama?
    7. Are you traveling alone?

    The flight was on a 737 with 43 in coach and 7 in 1st class. It felt empty. But there really were 15-20 officers in the jetway (no exaggeration), so many that passengers got confused when directed by the head agent to proceed to individual questioning agents. I even chuckled when I saw the scene. Though I have business in Panama, I am in my late 20′s and look like a “tourist” so as not to arouse attention from these hacks, but they were sparring no one from an inquisition.
    Even the normal folk, who suspect nothing’s awry with the guvm’t, were unsettled by this display.

    Looking forward to the Black Paper

  • Alexander

    can someone give me a contact for Christine Verone? Thanks a million!!

  • Auditor

    The inability of Chinese Middle and Upper-class individuals to find tax havens seems rather remarkable – there are several (nations) quite nearby – and with the govt. spurring global acquisitions, it would seem easy enough to do. If Christine wants to discuss I can give her a heads up / list and she can take it from there as an adviser to those she meets in China. The cost – a plate of chop suey if I ever land there, but that’s doubtful. Having been to Korea and finding it somewhat easier on the nerves and business (small nation – huge IP penetration) IF I have to go to Asia, I think S. Korea is my choice for now, though I do have a friend in Hong Kong who married a gal there and is quite happy.

  • http://www.wanderingsalsero.net Art Williams

    I’m not an investor but I still found the article interesting. If the politicians don’t get us all blown up first, I think we should let China do ‘their thing’ over in that part of the world and go back to what it used to be in the old days of ‘The Yankee Trader’. I think business people can still make money with the Chinese.

    I’m wondering, with all that you said about the expanding Chinese tourism industry, how much opportunity there might be for English language copywriting. Does the phenomenon you described include Chinese going abroad too (i.e. to English speaking countries)?

    Regards,
    Art

  • Captain Marvel

    Hey, Black — AMCN has been testing its 52-week low for the past couple weeks. Given the tenuousness of the US & European economies at the moment, and their inevitable knock-on effects to China, is AMCN a stock you’d be buying/holding right now?

  • http://www.eaglenationalmint.com/Coins/Half-Dollars walking liberty half dollar

    This one is really one of the best featured post and according to me this one is really mega. 30 Kg really keeps some importance. Thanks for the sharing some great information.

  • davidim37

    can you show a picure of people standing in line to buy silver ??

  • Crafty Black Guy

    McDonald’s will never go out of business – ever.

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