Concerns over inflation overdone; retail stocks still attractive
China consumer stocks have had a rocky start to 2010 (MSCI consumer
discretionary -15% vs. index -11% ytd) as concerns over China’s growing
inflation have escalated. We had significantly more Buys in retail than in
staples going into 2010, as we believe retail stocks perform better than staples
in an environment of normalized inflation and strengthening demand. Weak
ytd performance prompted us to take a closer look at our thesis; however, we
conclude that at current valuations, we still see more attractive ideas in retail