Bottoms Up: The Secret to Ringing in a Prosperous New Year!

Hundreds of millions of people around the globe, perhaps even you, will be ringing in the New Year with their favorite beverage.

New Year's Eve is a big celebration in the U.S., but New Year's Day is a gigantic celebration in Asia.

And as a young Japanese boy growing up in the United States, New Year's was always a major occasion in my home -- one that influences how I celebrate and invest even today!

In Japan, New Year's Day is called "oshogatsu." When I was growing up near Tacoma, Wash., my mother would prepare a lavish, expensive spread of Japanese delicacies, including sushi and ozoni.

Tony Sagami
Ring in the new year Japanese-style
with onzoni soup with mochi

Onzoni is a Japanese soup that includes a glutenous rice cake called mochi. It is eaten by practically every Japanese as the first meal of the year to ensure a happy new year.

New Year's Day was also special in our household because it was the ONLY day of the year that my farmer father didn't work ... and it was the ONLY day of the year that my father would drink liquor. Not much; just one serving of sake.

My father was a simple, Godly man and drinking just wasn't part of his lifestyle. Today, though, he would have trouble doing business in Asia -- because drinking with colleagues, vendors and customers is an integral part of doing business.

The alcohol of choice in China is a potent beverage called baijiu. Baijiu is a clear alcoholic drink that is made from rice in southern China, while in northern China it is made from sorghum, barley or wheat. The name baijiu translates into "white wine" but it is closer to moonshine or everclear. Most baijiu is 120 proof or higher!

Drinking in Asia is about building business relationships, and has very little to do with getting drunk. Not only is drinking an important part of the business and social culture in many Asian countries, it is also big business.

Figuring out how to profit from all that drinking isn't easy because there are more than 18,000 baijiu producers in China. Plus, a lot of big multinational liquor companies have already jumped on the China bandwagon.

arrow  U.K.-based Diageo (NYSE:DEO), the world's largest alcoholic beverage company, owns 49% of Sichuan Chengdu Quanxing Group, a wine and spirits producer.

arrow  France-based LVMH Moet Hennessy Louis Vuitton (OTC: LVMUY) spent US$141 million to acquire a 55% stake in Wen Jun Distiller.

arrow  Pernod-Ricard (OTC:PDRDY), the maker of Absolut vodka and Kahula, owns a 51% interest in Jiannanchun Group, a non-state-owned liquor enterprise in China.

arrow  SABMiller (OTC:SBMRY) owns 51% of China Resources Enterprises, one of the largest beer-makers in China.

You could invest in any of the four above blue-chip, multi-national companies and get exposure to the Chinese adult beverage market, but for a pure play on the Chinese market, you should invest in a China-only beverage company.

'What a Brew!'

If you are looking to diversify your holdings, consider these three stocks that trade on the Hong Kong and Singapore exchanges. They also have listings on the U.S. Over-the-Counter market but I would recommend considering the foreign shares, which are more-actively traded.

China Resources Enterprises (0281.HK) produces several popular Chinese beers including Blue Sword, Singo, Zhonghua, New Three Star and SNOW, its most-popular brand that accounts for 84% of sales.

How to say 'Cheers' in Chinese

How ingrained is baijiu into the Chinese business culture?

Heavy drinking at business and government functions is darn near mandatory in many parts of China, where "gan bei," or "cheers," is the official toast.

"Drinking with official guests or other officials at alcohol-soaked events is considered part of the job. Officials are used to sealing deals and making decisions at dinner tables," said Professor Li Chengyan of the school of government at Peking University.

If you've ever ordered a beer at a Chinese restaurant in the United States, you may have enjoyed a Tsingtao beer. Tsingtao Brewery (O168.HK) is the second-largest brewer in China and a rapidly growing company.

Luzhou (L46.SI) is listed on the Singapore stock exchange and is a Chinese company that produces one of the oldest and most famous Chinese liquors.

There is a legend of a man who drank many bottles of Du Kang's brew, but lacked the money to pay. Du Kang told him he could pay him in three years.

The man returned home and fell into a deep stupor for three days. His family, who thought he had died, buried him by mistake.

The family blamed Du Kang for his death, so when he came three years later to collect his payment, the family accused him of murder. Instead, Du Kang responded with a smile that they should instead dig up the grave and open the coffin. They did so, and the man who had been thought to be dead sat up and shouted in a high voice: "What a brew! What a brew!"

If you're more of an exchange traded fund investor, you may consider GlobalX China Consumer Sector (Nasdaq:CHIQ). The top holdings include New Oriental Education, Ling Ni Co, Denway Motors, China Yurun Foods Group, Parkson Retail Group, Sinopharm Group, Want Want China Holdings, Dongfeng Motor Group, and Tingyi Holdings.

Top sectors are retailing (28%), food and beverage (22%), services (25%), autos (17%), and healthcare (7%). And yes, that 22% food/beverage weighting includes China's top adult beverage companies.

I'm not much of a drinker myself, but I can tell you the adult beverage business is a booming industry in Asia, and investing in Asia's best-established distillers and brewers can make you a bundle of money.

Of course, I'm not suggesting you rush out and buy any of the above ideas immediately. As always, timing is everything, so I recommend that you do your own due diligence and wait for a pullback before you jump in.

To a prosperous and healthy 2014,

Tony Sagami

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Posted 01-03-2014 12:13 PM by Tony Sagami
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