Motley Fool Hidden Gems Investing - Stocks For China’s New Bull Market

Episode Date: January 10, 2023

A bull market in the MSCI Asia Pacific index doesn’t mean investors should make rash investment decisions.   (0:21) Bill Mann discusses: - How U.S. companies can be a better way to play China’s reopening - Jay Powell’s latest speech reinforcing the Fed’s focus on stability - The potential for other CEOs following Bob Iger’s lead as Disney employees return to offices starting March 1   (12:30) Alison Southwick and Robert Brokamp share tips for making this year a healthier and wealthier one.   Our new report, "5 Pullback Stocks" is available for free to Stock Advisor members. To access the report just go to www.fool.com/Pullback.   Stocks discussed: BABA, TCEHY, MCD, SBUX, KO, LVMHF, DIS   Host: Chris Hill Guest: Bill Mann, Alison Southwick, Robert Brokamp, Jackie Pecquex, Catie Peiper, Nick Lutz Producer: Ricky Mulvey Engineers: Tim Sparks, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

When WestJet first took flight in 1996, the vibes were a bit different. People thought denim on denim was peak fashion, inline skates were everywhere, and two out of three women rocked the Rachel. While those things stayed in the 90s, one thing that hasn't is that fuzzy feeling you get when WestJet welcomes you on board. Here's to WestJetting since 96. Travel back in time with us and actually travel with us at westjet.com slash 30 years. The good news is we've got a bull market. The bad news is it's probably not the one

you're hoping for. Motley Fool Money starts now. I'm Chris Hill. Joining me today, Motley Fool Senior Analyst Bill Mann. Thanks for being here. Hey, Chris. How are you? I'm doing all right because the MSCI Asia Pacific Index hit a high today that is more than 20% higher than the low it hit last October, which means it is officially in bull market territory. Is it time to start buying China stocks left and right? Still, over the last 5, 10, and 15 years, dramatically underperforming the United States of America. I mean, absolutely. If you have been invested in the United States and you have made

the choice to not invest anywhere outside of the U.S., you've made a good choice so far. But the question I guess you're asking is, now that China is reopening, is a bull market nigh? Is it on its way? That's the question I'm asking, and I'm not alone. I there are a lot of people who are looking at the news coming out of China, the reopening, not just the companies that are based there, but U.S. companies, Starbucks, McDonald's, others, that are depending on consumers in China and thinking, to use your phrasing, that a bull market is nigh. I don't know why we're beating the word nigh to death today, but that's … It's, I guess my first question would be, is it really that easy, right?

Would we say in the United States or in Europe or anywhere else in the world that opened really in 2022, is that the way it worked? Like, I don't really think it is. So the thing that you have to keep in mind when it comes to China is that they are going through a lot of the same things that the growth engines in other countries, particularly the United States, are going through in a way that's even more concentrated. Some of the big Chinese tech companies, Alibaba, Tencent, others, have laid off employees and have shuttered their headquarters and other office buildings. It matters a whole lot more in China than

it does in other countries, because China's market, its economy, is essentially supply-driven rather than demand-driven, and it's really heavily dependent on real estate. So, I think whenever you see GDP numbers in China, I think the first thing that you have to do is to remind yourself that it's just not the same as it is really in any other country because their domestic consumption on a relative basis is so low. There is, you know, the old saw about nature abhors a vacuum and Wall Street does as well. And since we are still days away from the official start of earnings season, it seems like at least part of the narrative around investing has been an attempt to fill that vacuum with optimism. Yes. The market is looking for things to focus

on. And obviously, one thing that you should do as an investor is look for areas where there is a change. And it is true that after two and a half years in China, essentially being shut down longer than any other country in the world that change is coming. But I actually think that you nailed it in terms of how you might go about responding to this. Think about the Starbucks of the world and the McDonald's and companies that aren't necessarily exposed to Chinese regulatory authorities that actually do benefit from there being more spending in China. there are plenty of them. In many ways, you can get a lot of benefit from China by holding the Coca-Cola Corporation or holding Louis Vuitton if you want to own

a European luxury brand. There are plenty of ways to do it. You don't necessarily have to go out and be fancy about the kinds of companies you own, and you don't need more exposure to Chinese companies to get exposure to China. Let's move on to Jay Powell then, because the Fed Chairman gave a speech in Sweden emphasizing the need for the central bank to be politically independent. I'm quoting here from the speech, price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time, but restoring price stability when inflation is high can require measures that are not popular in the short-term as we raise interest rates to slow the economy.

I guess for anyone who was hoping that the jobs report we got last Friday was going to make Powell and his colleagues at the Federal Reserve maybe pull their foot off the gas, this is Powell reminding everyone, no, we're still going to do what we've been saying for months that we're going to do. You have to give him credit for having the courage of his convictions, right? And I happen to agree, and I think maybe the best Fed chair that we've had in the last 50 years was Paul Volcker, who very specifically said, our job is not to follow the winds of politics. So, there were two parts of what Jay Powell was saying. The first of which was, we are focusing on making inflation a force for stability,

not a force for instability. And if we have to slow down the economy in the meantime, that is what we are going to do. But also, he was saying that the Federal Reserve has a structure around which it operates, and it has a regulatory authority, and that authority gives it some independence. And for him, that independence so that they can make unpopular decisions means that no matter how just or right popular decisions might be, if they are not within the remit of the Federal Reserve, he is saying that's not an area where we ought to be focusing. And I don't know about you, Chris, but I applaud that. I think that that level of specificity and awareness of what it is that they are supposed to be doing and what they're

not supposed to be doing is really refreshing. It is. Again, the consistency that we've seen, and maybe part of it stems from they got the transitory part wrong a year and a half ago. Maybe, I don't know, maybe that's some percentage of the equation here, it is good to see the consistency. And I also think it's fair to assume that when the Federal Reserve is going to take their foot off the gas, they're going to tell us. Yeah. Yeah. And I think that that's right. And you're right to point to that transitory word. We should not grant omniscience to the, we shouldn't do it to anybody, but we shouldn't to the Federal Reserve as well. They have, ultimately, fairly blunt instruments at their

disposal. They don't have a scalpel, they have a sledgehammer. And they are guessing, based on data that is much more sophisticated than that which we have, but it doesn't mean that it necessarily is going to give them a pure reading about what's coming down the pike. The economy is absolutely complex in ways that we don't really think about, but it is something that they have to deal with, an infinitely complex system. And in some ways, they're guessing, and they're going to be wrong, and they're going to adjust, but they're not going to do it based upon whether it's going to make them more popular or not. And I happen to think that that is, it's the only way a central bank should be. Real quick, I want to get your thought on

Disney CEO Bob Iger telling employees he wants everyone back in the office four days a week starting March 1st. The reaction to this online was quick and varied. And I saw a number of comments of people saying he's going to have a mass exodus. He's going to have people quitting. that sort of thing. One of my main thoughts was, this is 2023, this is not 2021. We've been talking on this show about Goldman Sachs and Amazon and Salesforce announcing layoffs, and they are only the first of more of these types of announcements to come. It's not going to surprise me if we see more companies following suit here. Me either. And I think if you were to set about the relationship between businesses and employees in 2022, it would have been that

businesses had an incentive to do whatever they could do to keep employees happy, that happiness was beyond anything else. And we are at a point now with layoffs at a bunch of different companies and companies really thinking about what it is that the company needs. One of the things that Bob Iger pointed to was that he is trying to boost morale and galvanize Disney's creative engines. That is a company that thrives on cooperation between creatives, between marketing people, between all different sets of components. I'm talking about Disney itself. We're not even necessarily talking about all of the different arms of Disney. He's asking them to come into the office so that magic process of creativity and collaboration can happen. If there are people

whose jobs don't necessarily need that, I guess that's okay. But what he is saying is that the overall morale, he believes, is going to be higher to the extent that that collaboration and that collective pushing towards a goal of making Disney a better company. And I think it's perfectly valid. And again, as you said, in a time in which Amazon has laid off or is laying off 18,000 people, you have layoffs across the board. I don't know that that is something that companies need to be afraid of as they were in 2022. Bill Mann, always great talking to you. Thanks for being here. Hey, thanks, Chris.

They say money can't buy happiness, but it can help your overall wellness. Alison Southwick and Robert Brokamp share some tips for making yourself wealthier and healthier in 2023. The start of the new year is always a time for reflection, resolutions, and optimism for a future you. Typical new year's resolutions are dominated with aspirations to live healthier or wealthier, like exercise more, eat healthier, lose weight, save more money, get out of debt. If you're aspiring to be healthier or wealthier in 2023, well, the good news is you're about to enter a virtuous cycle because science shows that health begets more wealth and wealth begets

better health. Yep. The evidence is clear. Healthier people are wealthier and the other way around. So let's look at a couple of studies. One is from the Urban Institute entitled, How Are Income and Wealth Linked to Health and Longevity? The report concludes that as annual household income increases, the percentage of adults suffering from various health impairments decreases. We're talking about things like heart disease, stroke, arthritis, hearing troubles, vision trouble, you name it. The higher a household's income, the lower the incidence of these chronic diseases. In fact, since the 1970s, wealthier people, particularly wealthier Americans, have seen their life expectancies increase by more than six years, while lower

income Americans have seen an increase of only about a year or so. Here's more proof. A 2018 Washington Post article by Christopher Ingraham looked at federal guidelines for exercise, which are that adults should perform at least 150 minutes of moderate physical activity or 75 minutes of vigorous physical activity each week. And they should also do some muscle strengthening activity, like calisthenics, listing weights, that type of stuff, at least twice a week. So here's what he found. The states with the lowest percentage of adults who met that criteria also tended to have lower median incomes, with the lowest being Mississippi. and the states with the higher percentages of adults who exercise and had also higher median

incomes, with the highest being Colorado. So health and wealth are correlated, but what about the causation? Does being healthier make you wealthier, or does being wealthier make you healthier? Well, the answer is yes. Having poor health is expensive, particularly here in the good old U.S. of A., and being wealthier can lead to improved health. Both impact the other in multiple and not always so obvious ways. Yeah, I think most people can understand that health issues get expensive, right? And the more money you spend on things like co-pays, drugs, procedures, the less money you're going to have left over to save and invest. And you're also more likely to miss work, which isn't great for your career.

Relatedly, one of the biggest reasons that people retire earlier than planned is poor health. And people who retire earlier than planned, they have fewer years to contribute to their 401ks, their Social Security benefits are going to be smaller, and they're going to have to spread their nest eggs over longer periods. And then finally, once we're retired and getting older, we want to remain independent, meaning that we can do all the activities of daily living without any help. And this requires a certain amount of strength, balance, cardiovascular health, all of which is improved by exercising. And once you're no longer able to be independent, your healthcare costs will skyrocket. So being in better shape can lower the chances that you'll

lose money to healthcare costs. But does better health cause greater wealth? Well, one study says, yes, it's entitled The Effect of Exercise on Earnings. And the author, Dr. Facilios Kostias, found that, quote, engaging in frequent exercise is associated with a 5% to 10% wage increase. Now, how could exercise lead to a bigger paycheck? Well, Dr. Kostias suggested a few possible reasons. First of all, evidence is clear that exercise leads to improved mental function, psychological condition and higher energy levels. So, that probably means you're doing a better job. Exercise has also been found to have sort of an indirect effect on job satisfaction by directly impacting enthusiasm at work. And then exercise can also serve as a signal to potential employers

that the individual is dedicated and disciplined or through social networking effects, because you know you're working out with people or playing games with people. So, you put it all together and the evidence suggests that, quote, individuals who regularly engage in physical activity may have a lower probability of being unemployed and higher wages relative to non-exercisers. All right. So you there at home or in your car, I don't know where you are, walking your dog, you're listening to this show. So clearly you're already thinking about your wealth. Now as for health, the good news is that it's never too late to improve it and reap the wealth benefits. Yeah. And here's a couple of studies on this one. A Canadian study published in 2010

and found that people over the age of 65 who were physically inactive incurred $1,214 more in healthcare costs each year compared to those who got some exercise. Then there's a study of 100 people in a nursing home in Boston. These folks had an average age of 87, and most of them used a cane or a walker. Half were assigned to an exercise program of resistance training three times a week, and more resistance was added as they progressed. After 10 weeks, those in the exercise group had significantly more muscle strength and mobility in their hips and knees, and a few were even able to get rid of their walkers. Well, here at The Motley Fool, we spend our day talking about money. And neither bro nor I are going to claim we're experts on health,

but we did ask our fellow fools what works for them to stay healthy. And it turns out there was no one-size-fits-all solution. For example, Katie found that tech and data unlocked healthier decision making for her. I'm Katie with the marketing team, and I'm a big advocate for working smarter, not harder with wearables. I love my Fitbit, and I recently added a continuous glucose monitor or CGM to my tool set, which has been a big game changer. I'm very data oriented and love being able to optimize actions and behaviors in real time, probably why I work in marketing. Being able to get immediate feedback on the effect of a workout session, meditation session, or specific food choices has not only helped me keep consistent with my

healthy habits, it's the ultimate accountability buddy, but has also helped me customize choices based on what actually works for my body. All right. Well, meanwhile, Jackie found that unhooking herself from the matrix and listening to her body actually led to a healthier life. I'm Jackie from the marketing team. And what worked for me was actually when my Fitbit died. I know a lot of people find success in following health metrics, but I would often beat myself up if I didn't hit 10,000 steps or get a certain number of zone minutes. So now I really try to focus on where I'm feeling tension or resistance in my body, how I'm feeling mentally, and then act accordingly. So that might mean going for a walk to feel the sun on my face if I'm feeling

tired, drinking more water if my vision's feeling kind of blurry, do some yoga if I feel chest or back tightness, or having a dance party in my living room if I feel any energy pent up. And another fool, Nick, found that habit building helped him lose 92 pounds. Hi, my name is Nick, and I'm a software developer for Motley Fool Wealth Management. I started a daily cardio routine in January of 2021 to get myself out of the emotional funk that COVID brought in 2020. And I think the biggest mistake I made when starting is that I would see people running in my neighborhood on a daily basis, and I always thought those people were just super

motivated every single day. And what I learned, at least in my experience, is that motivation gets you started, but that's all it does. And after a while, discipline takes over. You know, there are all kinds of human behavior studies out there that show that it takes two, three, or four weeks to develop a habit. And I think you only really need to hang on to your motivation for that long. After that, you just do it without thinking about it. And it feels weird if you don't do it. I love this lesson because I think it applies to saving and investing too.

Let the motivation get you started. Let the discipline keep you going. Create a habit and just do it without thinking about it. Yeah, when we asked for Fools to offer their suggestions, what we found is a lot of them just like to take walks. And you may have seen over the last couple of years, especially during the pandemic, many studies came out showing that walking is an excellent exercise. If you want to look up some of the evidence, just Google an article in Discover Magazine entitled, Why Walking Might Be One of the Best Exercises for Health. And really, for many people, it may be all that you need. And I know for me personally, I try to take a walk every day, at least an hour. And the other thing that gets me out of my chair or off the couch

is that I link things that I want to do with exercise, particularly podcasts and TV shows. So I can't listen to my favorite podcast unless I am walking, riding my bike on the treadmill or something like that. And the same with my favorite TV shows. I can't watch them unless I am on a treadmill or the elliptical. What is your favorite podcast? Well, so my favorite podcast, I like to listen to every week, at least related to finance is Animal Spirits from the Ritholtz Group. But I also think in terms of topics that I'm particularly interested in. So for example, I recently have renewed my interest in Tom Lear, who you may or may not have heard of. He was a piano playing satirist in the 50s and 60s, still alive as well

into his 90s. I'm like, what's happened to that guy? So I just searched for all the podcasts I could find on Tom Lear, but I can't listen to them unless I'm exercising. There you go. So listen to those podcasts while you're exercising and it'll be like you're doing it right next to bro. And what do you like to do, Alison? Uh, well, annoyingly enough, I'm one of those people who picked up pickleball during the pandemic. And so I will say it is not the most strenuous of sports. You're not necessarily going to break a sweat, but it's actually the getting outside, the moving and above all the social aspect of pickleball that really, really has helped my mental health. I know we focused a lot on like physical fitness activity and stuff like that,

but health is also about, are you getting enough sleep? Are you getting enough social interactions with people? How's your mental health? Are you stressed? It's not just about exercising. Although of course, exercising does have benefits to your mental health. So there is no single path to health or wealth, but we just hope that you spend some time finding your path to walk down in 2023 so that the 2020 for you is even just a little bit healthier and wealthier for us. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

I'm Chris Hill. Thanks for listening. We'll see you tomorrow. Thank you.