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Here’s why investors are piling into baby stocks in China

A young boy is held by his grandfather on a path in Beijing on October 30, 2015.A young boy is held by his grandfather on a path in Beijing on October 30, 2015.
A grandfather and young boy on a path in Beijing on Oct. 30, 2015.Photograph by Greg Baker — AFP/Getty Images

China’s decision to end its one-child policy after 35 years has created a whole new class of baby boomers in the stock market.

Stocks in baby-related companies, from infant formula to strollers, have been spiking since the Communist Party raised its population control ceiling to two kids per family, a move to combat an aging workforce amidst a slowing economy.

Analysts at investment bank Credit Suisse estimated that the new ruling could lead to six million more babies born annually in the five-year period starting in 2017, and that means more products would be needed to sustain these added baby steps. Among the stock market’s biggest growth spurts: infant formula maker Biostime International rose around 15% on the Hong Kong stock exchange, while China Child Care Corp, which makes hair and skin care for kids, saw stocks rise by 33%.

Other winners include infant formula company Yashili International (up 7.7%), education services provider Shanghai Xin Nanyang (up 10%) and stroller manufacturer Goodbaby International (up 6.3%).

However, some investors are cautioning against joining the crowd. On news that shares in Mead Johnson—kids nutrition giant and owner of the popular infant formula brand Enfamil—have risen 3.8%, Nomura equity analyst David Hayes wrote in a note to clients that:

With MJN deriving c 50% of its profit from China/HK infant formula, the stock is likely to react strongly to these headlines. On a (very) simplistic basis, correlating the Danone move, the stock could be up a double-digit percentage. A significant uplift in the share price of China baby food exposed stocks is though, in our view, an overreaction. The market has in the past had a tendency to become overly excited about the implications on the policy relaxation in China, and we have seen a more balanced/better informed adjustment take place over the preceding few days/weeks.

There have been losers in the aftermath of China’s policy change, however. Shares in Japanese condom maker Okamoto Industries have fallen by 5% on the Tokyo stock exchange since news broke.