If you are evaluating a stock or want to learn Professor NYU Aswath Damodaran is a great place to start. In one of his videos, he would seemingly joke and ask people why you use the growth rate you used in the formula? the answer was China. For a number of years, people could get away with the answer because China and its manufacturing base was a prime determinate in the thinking process. Then COVID happened and China shut down.

In an article by Keith Bradsher of the New York Times News Service, the President of China Xi Jinping abandoned his stringent pandemic restrictions on New Year’s. Of all the countries in the world, China operated on the strictest standards and locked down cities to wipe out any traces of COVID. When a city was locked down, very little economic activity was allowed to happen and while the President says China’s economy has strong resilience, great potential and vitality, in many parts of China that is not reality.

In Guangzhou, streets are lined with shuttered stores and workshops. Roads that were routinely packed are now empty. Walls once plastered with help wanted signs are now business for sale.

One example is Tony Tang, the owner of a 5th floor workshop that makes woman’s clothing. Sales have plunged 2/3s in the past year with increased competition with small factories in China and overseas. The prices Mr. Tang can charge has fallen for a woman’s jacket $14 to 11.30 a piece. The workers are easily found, the issue is lack of orders.

The damage that zero COVID inflicted on China’s once unbeatable attractiveness as a manufacturing hub could be hard to repair. Some global retailers, seeking risk in overreliance on China have turned to other countries for supplies. It used to be almost everything in Walmart came from China, now Walmart expects to ramp up imports from India to $10 billion a year by 2027.

Linking to dividend paying stocks, all companies have supply chain concerns or logistics. Companies have a balancing act between storing supplies in their warehouses (cost money) or ordering just on time deliveries. There are advantages and disadvantages to both systems, but logistics is something to be concerned with when it does not work. Once it does not work all companies seek to find alternatives so the balance works. For your investments, how does the company manage its supply chain?

There are more questions than answers, till the next time – to raising questions.