Upstream China Consumer Staples Are Attractive: Analyst

Friday, 17 Sep 2010 | 2:46 AM ET

Upstream Chinese consumer staples are attractive investments due to the rising expectation of inflation, said Eddie Lau, regional head of consumer research at Citi.

Focus on China's Upstream Food Companies
Inflation expectation is positive for upstream Chinese food companies, says Eddie Lau, regional head of consumer research at Citi, speaking to CNBC's Bernard Lo. He explains that such firms have an easier time to expand margins in an inflationary environment while competition makes it hard for retailers to raise prices.

"The expectation of inflation is positive for the upstream companies, and is negative for the downstream companies," he said.

Upstream companies would have an easier time expanding their margins in an inflationary environment, Lau explained, whereas the margins of downstream companies have been squeezed so far this year as they face stiff competition and challenges raising prices at the retail level.

China's agricultural wholesale price index dipped in the second quarter of this year but started to regain momentum in July, he noted, however said the rising prices were nothing to be worried about.

"Inflation would probably stay at the current level for the rest of this year. We're not as much worried about the food prices. The upcoming half is supposed to be very good for rice and corn. and so, we don't think that the grain prices are going to rise substantially,"

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