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How Would Your Investments Be Affected By A Slowdown In Chinese Economic Growth?

New economic data for China was released over the weekend and the numbers weren’t too pretty. The Asian giant’s industrial production growth slowed to a six-year low of 6.9% in August, falling short of the 7.5% growth-target the Chinese government had aimed at for the country’s economy

Since there are many Singapore-listed companies exposed to the Chinese economy, let’s take a closer look at some companies which may be directly affected by a slowdown in China.

1. OSIM International Ltd (SGX: O23)

Osim, a maker of massage and lifestyle products, has a huge retail network in China. In fact, it is one of its industry’s major players in the country

Since 2009, Osim’s growth has been fast: Revenue has grown at an average annual pace of 7.9% while pre-tax profit had experienced an annualised growth rate of a stunning 35%. But it might be prudent to not extrapolate such growth going forward.  That’s because Osim’s products are considered discretionary in nature. In other words, they are not necessities and their demand amongst consumers might ebb and flow considerably along with general economic trends.

Thus, if the slowdown in China is to continue, that might have a negative effect on the growth of Osim going forward.

2. Yanlord Land Group Limited (SGX: Z25)

Yanlord Land is one of the largest China-based property developers listed in Singapore. With revenue of more than RMB11 billion in 2013, Yanlord has projects running in a large number of Chinese cities including Nanjing, Shanghai, Zhuhai, Tianjin, and Suzhou.

The property market in Chinese cities has been a fiercely debated topic over the past few years. There has been no shortage of articles in the financial media which are pessimistic about the future of the Chinese property market given the oversupply of housing which has caused “Ghost Cities” to sprout in the country.

I wouldn’t want to wade into that debate but if growth in China’s economy can’t pick up again and demand for housing is reduced, property developers, like Yanlord Land, might have a big problem in sustaining their profits.

Foolish Summary

What I’ve discussed above is just an example of scenario analysis. It is a way for us to think of how global events might affect our investments. The goal here is not to be rid of all investments which do not fare well as per our analysis. Instead, the goal is to understand the sources of risk which our investments might experience over our holding period. In this way, we would not be caught off guard when our investments turn for the worse suddenly.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any companies mentioned.