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Investing in Lodging Stocks in China

Jim Cramer (Mad Money) talked about lodging stocks, like Starwood and Marriott, several times. Today, I would like to discuss my opinions of purchasing lodging stocks in China.

Many international hotel chains only operate full-service or luxury hotels in China. Even a Courtyard becomes a full-service hotel brand in China, many of which operate a minimum of two restaurants, serving Chinese and Western cuisines from early morning till late evening. These international hotels meet the needs of international businessmen, but they might not be the first choice for Chinese domestic leisure travelers.

Majority of Chinese domestic leisure travelers may prefer a budget, clean, and accessible hotel to an international 3- or 5- star hotel, which had made budget hotel a niche market in China roughly 10 years ago. Budget hotels become more and more popular in China over the years. Chinese budget hotel owners can compete with international hotel chains with fewer capitals and lower operation (service) standards. Several of these Chinese lodging companies are growing very fast. This makes investing in a Chinese lodging stock a possibly good option because of the following reasons:

1. As the GDP grows in China, domestic travel activities and the demands for budget hotels are very likely to increase as well.

2. Chinese currency (RMB) is under a big pressure of appreciation against U.S. dollars. Assuming a Chinese stock price remains stable, investors may still gain return if RMB’s value increases.

3. If RMB appreciates against U.S. dollars in a large extend, and more U.S. hotels are in the market for closure because of the recession, Chinese businessmen might expand their operations in an international market by purchasing overseas properties. Then, a Chinese lodging stock may become more appealing.

Here, I would also like to state that investments often come with risks. We need to carefully evaluate all associated risks before investing money in an overseas market like China. Last, if I am asked whether there is another possible niche market for small investors who understand China. I would say a cultural B&B operation with customized services.

References:
The pictures were copied from: http://www.htinns.com/join/map.html (property locations for Hanting Inns) and http://tinyurl.com/linchikwok04202010P (a Home Inns)

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