Will the Year of the Dragon fire up baby and maternity stocks?
While China's population declined for a second straight year in 2023 and birth rates hit a record low, analysts and experts expect number of newborns to pick up in 2024 as the dragon is believed to be the most auspicious zodiac sign in Chinese lore, with "dragon babies" destined for fame and fortune.
And this expected rush to bring dragon children into the world bodes well for stocks related to baby goods, fertility treatments, maternity and infant care, they say.
But others warn that the mythical beast may not be able to work its magic this time round as high child-raising costs and growing fears about the economy are putting off couples from having children in the mainland.
Symbol of power
China posed a record-low birth rate of 6.39 new births per 1,000 people last year, but Zhai Zhenwu, president of the China Population Association, expects a rebound this year as many mainlanders believe that babies born the years of the dragon are smarter and more successful.
The dragon is a symbol of supreme power in Chinese culture and ancient emperors often linked themselves with the mythical creature.
Chinese parents prefer to have babies in the year of the dragon to give them a good start in life and even try to time the birth of their children within the favored zodiac year, experts say.
This phenomenon has also been witnessed in Taiwan and Singapore, which is home to a large Chinese population.
Statistics for dragon years - which come in 12-year cycles - would appear to support the theory in part.
During the last two dragon years of 2000 and 2012, the number of newborns rose by 289,224 and 935,854 respectively over their previous years, according to research published by the US-based National Bureau of Economic Research. Also, the birth rate in 2012 - 14.57 per 1,000 people - was also the highest since 1999.
However, a dragon baby boom is not a sure thing, as birth rates actually fell year-on-year in 1988 and 2000.
Baby steps
With the world set to welcome the Year of the Dragon this Saturday , China is hoping that the traditional desire among mainlanders have dragon babies will boost flagging birth rates and reverse its population decline.
And though major baby-related stocks have not had a great start in 2024, investment banks believe this could change as the Year of The Dragon roars in.
HSBC (0005) expects mainland infant milk formula giant China Feihe (6186) to advance to HK$4.1 apiece, 15 percent higher than its current price of HK$3.51.
CCB International expects China Mengiu Dairy (2319) to outperform with a rise of 20 percent to HK$21.2 per share versus HK$17.62 while HSBC gives the leading dairy firm a buy rating, predicting a larger jump of about 41 percent to HK$24.8.
Reproductive service and test-tube baby specialist Jinxin Fertility (1951) has a buy rating from China Merchants Securities which bets it will surge more than 300 percent to HK$8.7 apiece from HK$2.14 last Friday.
But Goldman Sachs has graded Jinxin neutral despite a target of HK$4.5 per share, twice its price.
Health & Happiness International (1112), which owns global nutrition brands including Biostime and Swisse, is also on HSBC's wish list. It suggests investors hold the shares, which it expects to rise around 12 percent to HK$11.6 from its current HK$10.32 apiece.
Jefferies has a buy tag on H&H and estimates it could climb 36 percent to HK$14.
However, all these four players have fared worse than the benchmark Hang Seng Index this year - which is down over 7 percent - led by Jinxin's slump of 34 percent.
Economic woes
But not everyone is optimistic amid a sluggish market and economic gloom.
The Year of Dragon may only stem China's decline in population rather than lead to a rebound, says Yuan Xin, a professor at Nankai University's School of Economics and Vice-President of the China Population Association.
In the long run, the China Academy of Social Sciences and the United Nations predict China's population would peak around 2030 at 1.44 billion or so and then decline, versus 1.409 billion in 2023.
In Singapore, Virtus Fertility Centre warns demand for test-tube babies will not rise like it did 12 years ago, with managing director Tim Kwan saying that couples will delay having babies due to rising costs and economic uncertainties.
He says there's also a fear that dragon babies will face stiffer competition at school.
Some adults born during the year of the dragon say they were forced to go to school a year later because of the surge in births that year.
Counting the costs
Hong Kong Institute of Financial Analysts and Professional Commentators vice chairman Francis Kwok Sze-chi says he has "no confidence" in baby stocks, amid ongoing layoffs and falling home prices in the mainland.
In fact, child-raising costs in China are the second highest in the world behind South Korea, according to the YuWa Population Research Institute.
In 2022, the cost of raising a child until the age of 18 in the mainland was 6.9 times its gross domestic product per capita, compared to 2.06 in Australia, 4.11 in the United States and 4.26 in Japan.
Only South Korea was higher at 7.79 times the GDP per capita, it says.
GDP per capita is calculated by dividing the GDP of a country by its population.
James Liang Jianzhang, a demographer and the co-founder of Trip.com (9961) has urged Beijing to allocate 5 trillion yuan (HK$5.5 trillion) - or 4 percent of China's GDP - toward housing and education subsidies for families with children.
He says it's time to use the returns from infrastructure and manufacturing investments to boost the country's manpower. Otherwise, fewer births and a growing elderly population will not only burden China's finances but also weaken its competitiveness in terms of talent and technology, he warns.
China scrapped its decades old one-child policy in 2015 and has since rolled out tax cuts, subsidies, cash rewards and other incentives to encourage couples to have up to three children. But apart from a spurt in birth rates in 2016, the efforts have had little success.
Last year, the total number of people in China dropped by 2.08 million or 0.15 percent, to 1.409 billion, well above the decline of 850,000 in 2022, which had been the first since 1961.
Kwok points out that when Shenzhen offered subsidies of as much as 19,000 yuan families with three children early last year, stocks like BabyTree (1761) and Goodbaby International (1086) shot up by about 5 percent and 3 percent in a single day, but the shares are today languishing at HK$0.6 and HK$0.26 respectively.
Therefore, he doesn't believe that baby stocks are worth investing in, even for short-term speculation.
However, if investors want to bet on a dragon baby boom, Kwok recommends sticking to industry leaders like Mengniu.
Everbright Securities International securities strategist Kenny Ng Lai-yin is more circumspect.
He says he would only enter the market if Beijing launches stronger economic stimuli or if baby-related enterprises "fundamentally change" the way they do business.
