Across The Border
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China’s sports stocks to sizzle this summer

PUBLISHED : Tuesday, 21 June, 2016, 4:23pm
UPDATED : Tuesday, 21 June, 2016, 4:23pm

The European Championship has ushered in a popular sports season and ignited fund inflows into the sports sector. With Chinese companies on a recent shopping spree for global sports assets, analysts expect to see an increasing trend of capital rushing into the sector to capture business opportunities and perhaps make political gains.

As the European Championship and Copa America kicked off at the start of June, the sports sector is once again in the investor spotlight. As of the end of last week, the CSI Sport Industry Index, which measures the performance of sporting goods and content distribution-related stocks, had gained 1.5 per cent over the previous four weeks, outperforming the Shanghai benchmark index.

“The European Championship has marked the start of a sports feast this summer, followed by the Chinese Super League, the Olympics, and the qualification games for the 2018 FIFA World Cup in Asia,” said Lin Juan, an analyst for Ping An Securities.

“We expect the heat to continue rising in the sports sector,” she said.

Lin suggested investors focus on industry leaders which distribute sports content, operate or market key events, own sponsorship rights, or even run sports lottery businesses. Her favourites included Leshi Internet Information & Technology, an online video and internet TV content provider, as well as marketing firms Leo Group and Wuhan DDMC Culture.

Zhong Qi, an analyst for Haitong Securities, also said the sports sector is seeing “accelerated” capital inflows. “Chinese companies are on an acquisition spree in sports assets,” he said, referring to the recent purchase of Italian football team Inter Milan by Chinese retailing giant Suning Commerce Group.

And Suning is just one examples of Chinese investment in this sector. Last week, Chinese LED manufacturer Ledman paid US$3.7 million to become the new boss of Newcastle United Jets, an Australian football club. In the same week, Jiang Lizhang, the owner of China’s Link International Sports, completed a deal to acquire the Spanish football club Granada GF for 37 million.

Earlier in June, Chinese businessman Alex Zheng, who is the president of hotel group Plateno, headed up a group of Chinese and US investors to buy the French soccer club OGC Nice.

In May, Chinese billionaire Tony Xia also spent £60 million on buying the British football club Aston Villa. And last year Dalian Wanda Group, owned by Chinese tycoon Wang Jianlin, bought a 20 per cent stake in Spanish football club Atletico Madrid for 45 million.

The boom in sports investment by Chinese companies may be due to both business and political reasons. “The push for sports investment comes from the top,” Zhong said, “Beijing is calling on private capital to invest in the sector.”

Last month, China’s State General Administration of Sports (SGAS) released a five-year plan for sports development, estimating the market size of the Chinese sports industry would top 3 trillion yuan by the end of 2020. By then, the added value of sports service will account for 30 per cent of the overall sports industry. China’s sports industry was worth 1.4 trillion yuan in 2015, according to the latest government statistics.

The push for sports investment comes from the top. Beijing is calling on private capital to invest in the sector
Zhong Qi, Haitong Securities

The state authority echoed the ambitions of Chinese President Xi Jinping, an avid football fan who has said he hopes to develop China into a superpower in sports, in particular football, and facilitate the nation’s entry into the world’s elite club for football someday.

Sports lottery is also a focus of Beijing’s policy support as China aims to “start up football lottery on the Chinese domestic leagues”, “broaden the lottery trade channel” and “steadily expand market scale”, the plan said.

“Investors are given a big boost to invest in football and other sports,” Zhong said. “Among the sub-industries, football may have the biggest potential to explode.”

“The green light given to the sports lottery will also draw more attention to the sector,” he said.

In particular, he advised investors to look at football-related stocks and sports lottery shares, such as Ledman Group, the new owner of Newcastle United Jets, marketing company Wuhan DDMC Culture, sportswear manufacturer Beijing Sanfo Outdoor Products, and Telling Telecom Holding, which has recently established a lottery operation platform.

“Buying stakes in foreign players will also stimulate downstream demand in domestic markets and thus boost relevant consumption,” Zhong said. “We have good reasons to expect the prosperity of the entire industry.”