Everyone piling into baby-formula stocks because China ended its one-child policy needs to calm down
Everyone calm down.
That's the message from Nomura analysts to investors that are suddenly piling into shares of Mead Johnson Nutrition, which makes infant formula.
These folks likely want a piece of China, following news from state-owned Xinhua news agency earlier Thursday that the country is abandoning its one-child policy.
Apart from the huge demographic implications, more babies would mean more need for diapers, baby formula, and so on.
Shares of Mead Johnson rose by as much as 3% to the highest levels in over two months. In a client note, Nomura's David Hayes wrote,
A significant uplift in the share price of China baby food exposed stocks is though, in our view, an overreaction. The market has in the past had a tendency to become overly excited about the implications on the policy relaxation in China, and we have seen a more balanced/better informed adjustment take place over the preceding few days/weeks.
The analysts rate Mead Johnson a "Buy".Google
Another company whose shares jumped on Thursday was Synutra International (~10%, makes infant formula).The analysts go on to note that the policy, first fully implemented in 1980 to combat overpopulation, has been eased a couple of times already.
And because this is a big cultural shift for the population, people are unlikely to suddenly start making babies.
For investors cashing in on companies that could benefit from breast feeding, the analysts note that China has one of the lowest breast feeding rates in the world.
They wrote, "We do see some benefit to Mead Johnson and other names in the medium term of the China population development, this in a small way contributing to a global category growth outlook that structurally remains superior to most other processed food categories. However, the reaction of the EU names (and the expected reaction of MJN) on the news flow today looks overly simplistic and we advise caution re chasing the theme."