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By Jeremy Glaser and Dan Su, CFA | 08-14-2013 02:00 PM

China's Consumer Shift to Bring Revenues Online

As China seeks to rebalance to a consumer-led economy, several Internet firms in the country are poised to gain from higher advertising spending, says Morningstar's Dan Su.

Jeremy Glaser: For Morningstar, I’m Jeremy Glaser. With concerns about growth in China continuing to mount, should investors completely steer clear? I’m here today with Dan Su, an equity analyst at Morningstar, to look at some Internet companies that could still have some growth ahead of them.

Dan, thanks for joining me today.

Dan Su: Thanks for having me, Jeremy.

Glaser: We talked to Dan Rohr, one of your colleagues, earlier about some of the challenges China is having with rebalancing its economy a little bit, and he thinks that’s going to cause some drag on growth for some time. But that being said, are there any opportunities you’re seeing in China right now?

Su: Yes, that’s a great question, Jeremy. I think with the rebalancing what the Chinese government is trying to do is to put more focus on consumer spending, and that’s good news for the broader consumer sector, and specifically for the Internet stocks that I’m covering because these Internet stocks definitely benefit from two tailwinds. Number one, with rising consumer spending there is going to be more advertising dollars chasing after consumers. That’s good for overall ad spend. The other thing is, as more people move their activities from offline to online, the advertisers are following suit allocating higher spend on the Internet. That’s definitely good for Internet companies.

Glaser: During the last few years how have the Internet firms been coping with this changing macroeconomic environment?

Su: I would say that they are in a good position in terms of the secular tailwinds kind of providing them a buffer from the broader economic environment. Obviously, if the overall economy is not doing well and that persists for a longer time, that’s not good for everybody. But so far what we have been seeing is that online advertising spend as overall spending is growing steadily every year. People are doing more entertainment and other activities, online shopping, et cetera, online. That creates a lot of revenue opportunities for the Internet companies, as well.

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