Director’s Cut -Yellow Lamborghini tells the story :: Macquarie

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Director’s Cut
Yellow Lamborghini tells the story
Judging from the photo of the yellow Lamborghini on page one of his latest
report, Clive Wiggins and the global autos team have been having a good time
with their channel checks for the Chinese auto sector.
One of the key results is that growth in passenger vehicle sales is likely to be
closer to 5% than 10%.  That said, the really interesting finding is the strength at
the luxury end of the market, with Audi, BMW and Mercedes sales actually
accelerating while the broader market stalls.  This is in line with the rise of
aspirational consumption in Asia, and the growing desire of newly affluent
Chinese to buy status goods.  In this light, he continues to be bullish on BMW
(BMW GR), as a key beneficiary of this trend.  >> Read Report
The strength in luxury car sales also has larger implications.  Coupled with the
strength in Swiss watch exports to China, which were up 46% in the year to May,
it’s clear the consumption of China’s new rich has hardly been impacted by tight
monetary conditions or the broader weakness indicated by the latest PMI.  This
bodes well for earnings of luxury goods companies, such as Christian Dior (CDI
FP), Compagnie Fin Richemont (CFR VX) and LVMH (MC FP).
Coming back to yesterday’s topic of Chinese social housing and the boost this
will give to iron ore and copper demand, two cheap Japanese stocks that should
benefit are Mitsui & Co (8031 JP) and Sumitomo Metal (5713 JP).  Based on
Polina Diyachkina’s estimates these stocks offer very attractive forecast 12-
month TSRs, with Mitsui’s approaching 60% and Sumitomo at 70%.


Highlights
 Matthias Joerss sees a bounce in European equities, but would avoid
cyclical risks for now as weaker growth has led to few downgrades.
 Bill Carcache says the Fed’s lower than expected interchange cap is bullish
for Visa (V US) and MasterCard (MA US).
 Eng Seang Seet says May was another outstanding month for loan growth in
Singapore, and he still favours UOB Bank (UOB SP).