As China is on holiday, with its volatile stock markets due to reopen only on Thursday, investors are breathing a sigh of relief and Western markets are rallying. Jim Cramer wrote in his opening piece this morning that China is underpinning the recent gyrations in the stock market.
The country's stock exchange rout may have given investors reasons to realize that not everything Chinese is bound to grow without pause, but one thing is surely still increasing: the Chinese appetite.
As the Communist Party tries to rebalance the economy toward more domestic consumption to rely less on exports for growth, it is helped by the increasing food needs of the population. These pose a domestic supply challenge, but they also present wonderful opportunities for investors who position themselves to take advantage of the companies this trend could lift.
"China's changing diet will have a transformative effect on corporate deal activity in the next few years, as Asian trading houses seek to secure scarce food supplies," John Dwyer, PwC global head of deals, told TheStreet.
PwC released a study that shows calorie consumption in the world's most populous country has jumped from an average total intake of 1,863 calories daily per head in 1971 to 2,819 in 2001 and 3,074 in 2011. By comparison, in the U.S. daily calories per capita rose from 3,052 in 1971 to 3,709 in 2001 and have fallen slightly since then, to 3,639 in 2011.
For China, the biggest change has been in meat consumption. Animal calories have increased by well over 400% per person per day since 1971, the study shows. (By comparison, animal calories consumed in the U.S. in the period have remained nearly flat, at 996 per person per day.)
China will not be able to satiate such voracious appetites on domestic production alone, so it is bound to look for resources abroad -- in fact, it is already looking. Remember that more than two years ago, Henan-based Shineway Group, China's biggest meat producer, bought U.S.-based Smithfield in a deal worth around $7 billion.
Such acquisitions are likely to continue, as Chinese companies eye sources of growth abroad. Besides companies that could be targets -- the Chinese seem to prefer firms that have businesses in other emerging markets, a feature that gives them a wider reach -- investors should also keep an eye on those companies that could be affected by the deals.
"The acquisition of Nidera and Noble Group's agri trading unit by China's Cofco in 2014 was a signal of intent by Chinese companies to secure quality assets," Dwyer said.
As national borders are increasingly rendered irrelevant by the global trade in goods and services, investors would also do well to look at stocks listed on other exchanges for growth opportunities.
"In recent years, we have witnessed the traditional strength of the ABCD -- ADM (ADM), Bunge (BG), Cargill, Louis Dreyfus Commodities -- quartet being challenged by the emergence of the NOW -- Noble Group, Olam, Wilmar -- trio, so change is already well under way," he added.
Olam is a global processor and trader of soft commodities, while Wilmar is Asia's top agribusiness group. They are both listed on the Singapore stock exchange, as is Noble Group.
Chinese appetites, as well as the population, keep growing, albeit at a slower pace. This means self-sufficiency in food production will be harder to reach, and China will have to rely more on imports of anything from rice to wheat, corn and soybeans, so investors in those commodities may also profit over the longer term, especially since prices are so depressed currently.
Another area to watch and that has largely been ignored is that of helping the country to clean up its land (which is suffering from pollution because of the massive industrialization) and to boost domestic agribusiness.
"The shift in profile of Chinese demand also means opportunities for geo-traceability technologies, soil analysts and waste management companies, as China attempts to overcome some of its supply-side issues," Dwyer said.
The International Monetary Fund cut its global growth forecasts again today and said China's shift away from focusing on exports and toward domestic consumption is a powerful force for the global economy. Investors should make sure they are on the good side of that force.