The latest growth numbers for China are not pretty. In the third quarter, its economy expanded by a mere 0.2% from the quarter before and growth was 4.9% from the same quarter last year. The tell-tale signs were already there when one of the country’s biggest property developers, Evergrande, almost folded, leading to stock market tremors around the world, including in the FTSE 100 index.
And now it is there in the official numbers. I am keeping a close watch on the unfolding developments in the economy. This is because they have a bearing on the FTSE 100 stocks I hold for whom China is a big market. And it is no coincidence that ever since bad news has started coming from the country, these stocks have plunged.
Share price fall for China-focused FTSE 100 stocks
Consider multi-commodity miners like Anglo American and Rio Tinto. Anglo American was at multi-year highs in early August, but since then it has lost more than 17% of its value. Rio Tinto has fallen even more since early August, by 31%. Though in this case, it has its own challenges to deal with as well. Another is the luxury brand and retailer Burberry, which has seen the most dramatic fall of them all. The British brand, which is popular with the Chinese with fast growing incomes, has fallen by over 40% since early August!
Since I hold all three stocks in my portfolio, it has taken some hit because of the China slowdown. And there may even be more, given that between 50% and 60% of their revenues are derived from China.
Why they can start rising again
However, I think they can ride out of this situation. And that is because all these companies’ value has existed for far longer and their markets are much bigger than just China.
On reason why the Chinese economy makes up a big share of their revenues is because other parts of the world have not been growing fast. However, demand is picking up in the rest of the world. And this is when overseas travel is still restricted. I expect that as the remaining economic engines gather speed, we will see demand pick up more. Global growth is expected to be robust in both this year and the next, despite some latest reductions to forecasts.
Besides that, these stocks are cyclical anyway. So sharp corrections are not anything out of the usual for them. In fact, even with the latest declines, Anglo American is still up 45% over the year, Rio Tinto is up 10%, and Burberry is up 20%. If I hold them for a long enough period, they could be even more rewarding.
And at least for now, the miners also pay great dividends. Rio Tinto’s dividend yield is at almost 10%, while Anglo American’s is 6.3%.
What I’d do
If I had not bought them already, I would not miss buying these stocks in October while they are still down. With the FTSE 100 back to pre-pandemic highs, I think they could start rising soon.