Beijing Olympics 0 comments

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The 2008 Beijing Olympics is seen by many as the "coming of age" party for China, as the new major player on the world stage. Historically it has been seen as a loss-making event for the host country but in recent Games it is increasingly being seen as providing a stimulus to the economy, both for the short term and the long term, if managed correctly.

For the short term, the preparation and actual staging of the Games contributes sigificantly to the economy, as new infrastructure and stadiums have to be built in the run-up to the Games, and there is a tourism and consumption boost in the year of the Games. South Korea’s economy grew 12% in the year of the Seoul Olympics. For the long term, the host country and city could use the Games as a platform to raise its profile (such as the Barcelona Olympics), or as the catalyst to undertake long-term infrastructure upgrades (eg. Seoul, in preparation for its Olympics, undertook the expansion of their airport, the construction of new roads and underground stations and enormous improvements to the telecommunications infrastructure), or to position the city as an attractive leisure tourism spot or as a business convention hub, hence building on the momentum post-Games.

From the Chinese government down to the citizens, the feedback is that all are focused on one big goal: keep the economy booming so that by the time the Olympics in Beijing rolls around in 2008, China will be able to stage the biggest international event in its history. There are not likely to be any serious issues with Taiwan till then. The Games is a huge rallying call and mobilises the nationalistic tendencies of the Chinese. But there is talk that underlying problems could start to surface post-Olympics eg. social inequality problems, geopolitical problems (that could be used as the new rallying cry by the Chinese government).

Some people thus see 2008 as the watershed year, in terms of political direction, and therefore, for investing as well. Personally I wouldn't practise this form of market timing (exit before 2008); a better idea is to look at the medium term at the sectors that could benefit the most from the buildup to the Games. The area around Beijing would be key, and infrastructure construction (roads, rails, telecommunications, sports facilities) would be the obvious beneficiaries, together with hotels, business services, retail. These will filter upstream and downstream: construction materials, digital electronics, luxury durables, telecommunications equipment and environmental protection facilities.

One may notice how Chinese companies are trying to build their brands overseas. That drive was behind the takeover of IBM's PC division by Lenovo and Hai-er's attempted acquisition of Maytag. The Olympic Games would provide them the perfect platform to open Chinese companies to the world, and companies performing advertising and media services will ride on this demand for advertising. Fung Choi for example; too expensive now.

With respect to consumer goods, sportswear/sports equipment is the most obvious beneficiary. In Hong Kong, companies like Li-Ning are trading at 30X PE; over here China Hongxing is not far off that valuation, on the strength of its Erke brand. One might even guess that China Sky's price surge and general market optimism recently has partly to do with its exposure to the textiles segment, in particular nylon, which is used to manufacture high-end sportswear and has no direct substitutes. Increasingly, this Olympics theme might play out over the next 1-2 years.

References:
(1) Irish Times article 11 May 06: Is it economically beneficial to host the Olympics?
(2) Asia Times article 24 July 01: Seoul sees windfall from Beijing Games
(3) Investment U: Investing in China in 2006
(4) Moneyweek article 28 Apr 04: Will Greece be an Olympic winner?