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After a difficult few years coming out of the Covid-19 pandemic, the Chinese economy’s starting to show some signs of life. And I think that could be a very positive sign for a couple of UK shares.
One is FTSE 100 mining giant Rio Tinto (LSE:RIO) and the other is beleaguered fashion house Burberry (LSE:BRBY). I think it could be worth keeping an eye on both in October.
China
China’s been struggling economically over the last few years, for a number of reasons. These include high debt levels, tough Covid-19 lockdowns, and strained relations with the US.
Recently though, there are some signs that the economy is starting to turn the corner. Vehicle registration data from the start of September has been encouraging, especially for Tesla.
Around 31,800 new Teslas were registered during the first two weeks of September. That’s a significant increase on the first two weeks of August, where the number was 28,000.
Investors have been taking this as an indication that things might be about to look up for the US car/AI/robotics company. But I think it could also be a positive sign for some UK stocks.
Rio Tinto
Rio Tinto’s chief product is iron ore and its largest market – by some margin – is China. In 2021, the company generated around 57% of its revenues in the region.
Since then however, sales have fallen from just over $36bn to around $32bn, causing a 6% decline in overall revenues. As a result, the stock’s underperformed the FTSE 100 since the start of 2021.
That’s a good reminder for investors of the risk of having a heavy concentration of sales in one area. But if things start to recover in China, this could be very positive for Rio Tinto’s earnings.
Despite a cut in 2023, the dividend yield’s still around 6%. I think that makes the stock worth looking at in October and beyond.
Burberry
In 2021, Burberry generated around a third of its sales in China. But that’s fallen from around £752m to just under £650m over the last few years.
Decent growth elsewhere helped limit the effect on overall revenues for a few years, but the firm’s sales finally began to decline in 2023. And the stock’s down 70% over the last 12 months as a result.
Fashion can be a difficult industry and there are only a few companies immune to the ups and downs of shifting consumer preferences. That’s the big risk with Burberry for investors.
Nonetheless, the brand’s had an enduring popularity in China. And if higher Tesla registrations are a sign of improving consumer strength, things could be looking up for the UK fashion company.
Long-term investing
I wouldn’t consider either Rio Tinto or Burberry just because I thought the share prices might go up in the next month. And there’s more to the long-term outlook for both companies involves than just China.
I do think however, that it’s significant a key market for both is starting to show encouraging signs. And while the last few years have been difficult, something more rewarding could be on the way.
