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Chinese Data Makes Me Upbeat On Diageo plc

The media loves bad news. Turn on the television, open a newspaper or look on a website and it’s all the same: bad news.

Indeed, I watched the BBC evening news for the first time in months recently and was amazed at how negative all of the news stories were.

The news focused on how a housing bubble was being created, meaning first-time buyers were going to find it even more difficult to get on the housing ladder. Then there was discussion of a 4%-plus increase in rail fares as well as various other downbeat news items.

Of course, the above viewpoint can also be applied to the financial media, which seems to enjoy nothing more than talking down various economies across the world. Now that Europe and the USA are seemingly on the up, the financial press seems to be focusing on the difficulties China is having in trying to maintain growth of over 7% per annum, simply because it wants to report bad news.

Moreover, the data coming out of China does not paint such a negative picture. For instance, exports rose 5.1% year on year in July, recovering from a 3.1% drop in June. Furthermore, imports increased by 10.9% year on year; up from 0.7% in June.

Both figures were ahead of forecasts and the jump in imports is especially pleasing due to it being a reasonable barometer of the state of the Chinese economy. It is also great news for Diageo (LSE: DGE) (NYSE: DEO.US), which is seeking to grow its presence in China.

Indeed, China is a key market for Diageo, with the company increasing both the size and scope of operations there. This is of little surprise, since Diageo’s growth in China in the past year has been around 8%.

In addition to offering exposure and potential growth in China, Diageo still looks like a decent investment. Although it trades on a price to earnings (P/E) ratio of 20, earnings per share are set to grow at around 10% per annum over the next two years.

Furthermore, a beverage sector P/E of 21.4 makes Diageo’s shares seem relatively good value.

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> Peter does not own shares in Diageo.