The pandemic hasn’t been overcome yet, but there is some good news. China, which was the first country to be hit by Covid-19, is well on its way to recovery. As a result, its economic prospects have improved. I think this is a good opportunity to consider buying FTSE stocks with exposure to the country.
China’s recovery to support demand
In a recent report, Fitch Ratings, the global ratings agency, said that it had upped its China growth forecast for 2021 to 2.7% from 1.2% earlier. Even though this growth rate is way below China’s earlier 6%+ growth rate, this is only because of a sharp fall in GDP in 2020. In fact, according to Fitch, China’s GDP is already back to its pre-coronavirus levels. I think this bodes well for stocks like the FTSE 100 British luxury brand Burberry (LSE: BRBY), which has struggled because of the lockdown and the related sharp drop in demand. In its last trading update, the company reported that its revenue was down to almost half that in 2019.
However, it also mentioned improvements in the Chinese market. Around 20% of its revenue is derived from China, and the number from Chinese shoppers is quite likely more because they also shop in places like Hong Kong. Asia Pacific, as a whole, accounts for over 40% of Burberry’s revenue. So even if the rest of the world shows muted demand, improved conditions in China alone can impact this FTSE 100 stock’s fortunes favourably.
Prospects for the FTSE 100 stock
This doesn’t in any way imply that BRBY will be back in the pink of health any time soon. Only that its prospects look better now. The company expects its full year, which ends in March 2021, to be underwhelming, and I think that’s no surprise. But, I also think that by this time next year, the outlook will have improved quite a bit. So if I have to start planning my investments for 2021 now as we near the end of 2020, BRBY is definitely on my list.
Its share price trends are already encouraging, improving a great deal from the market meltdown driven weakness seen earlier in the year. I reckon the company’s next update could show improved performance, since economic conditions are on the mend. This should push the share price up even further.
Alternative investment idea
Ted Baker is another FTSE stock I’d consider for its China exposure. The brand saw an astounding fall from grace last year resulting in its founder and CEO’s exit from the company. 2020 has dealt it another blow, like it has to almost all other companies. But its share price, too, is on the mend. It has a joint venture in China, with ambitious plans, and it may well turn out to be a good investment over time. I wouldn’t rush to buy the stock right now, but it is on my watch-list.
Manika Premsingh owns shares of Burberry. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.