Rare, good comentary on current market conditions. If the US economy goes into recession, the S&P profits will decline, not grow. First Call though Q3 would grow 15%, on July 1. Today, they are below 5% on Q3. They should look out a few more Qs, IMO. A big correction, that lasts, could be the nail that causes a US recession.
A couple of points:
At these prices, Chinese consumers ARE NOT AS LIKELY to defer VideoCD purchases in an economic slowdown, as they are purchases of more expensive durable goods."
What the hoot does this mean?
In a currency devaluation, prices on VCD will only move up 10%, VCD sales will dry-up during the crisis. Months afterward, people will buy the VCD players they delayed(could hit 1Q). The lower currency will push DVD more out of the reach of the masses, delaying the day when VCD dies, and benefit C-Cube.
There is some Risk that China will Devalue its currency
China will devalue its currency around the March, 1999. It's the meeting of the People's Congress. That's when all of the years major policies are made, for China's next year. They will probably float the Hong Kong dollar, and have a convertable Yaun to the Hong Kong dollar. Effectively a devaluation.
Beijing has also intimated that the will to resist a devaluation would depend on Japan's ability to keep the yen from depreciating further.
Beijing is pushing Japan/US to do something. If they are successful, the US Fed cuts rates/Japan adopts economic stimulus measures.
If China enters a deflationary period, they would devalue to raise prices. Deflation is good for the consumer but it's terrible for the Gov't because it means lower tax revenues. By devaluing enough to cause inflation, the tax revenues can increase, the gov't can continue to spend.
China is experiencing deflation today. And it's bad for sales figures...................................
cei.gov.cn
China's Retail Sector Suffers Drops in Sales, Profits
Overshadowed by a sluggish macroeconomics climate, China's shopping malls suffered sharp decreases in sales and profits in the first half of this year.
China's retail sector, suffering from a buyers' market, posted weak growth of 6.8 percent in the first half of this year, plunging 4.2 percentage points from the same period last year. Moreover, the national retail price index has also seen adverse growth for nine consecutive months, down from -0.4 percent last October to -2.1 percent in June, according to the State Statistics Bureau (SSB).
As supermarkets and chain stores spring up across the country, the profit margins of large stores unavoidably shrink. An SSB report show that 57.7 percent of the leading 260 department stores suffered declining profits in the first half of this year while 25 percent of them were in deficit. However, experts held that profits may rebound in the second half of this year as the government investment available to expand domestic demand takes effect.
China Economic Information(08/17/98)
The bottom line is VCD, will grow by around 50% in in units, during 1998. C-Cube's market share and average selling price are growing. For the next 3Q, VCD revenues are flat, at worst. |
