4 key Asian investment themes to watch
While the ongoing US-China trade stoush and concerns about US rate rises are expected to have a “painful but not devastating” impact on the Chinese economy, investors should keep an eye on four key investment themes given the vibrancy of China’s middle class which “loves shopping and loves spending,” according to Premium China Funds Management.
Speaking to an audience in Sydney on Wednesday, Premium China Funds Management deputy chief investment officer, Renne Hung, said that consensus estimates saw the proposed tariffs shaving only about 1.2 per cent off China’s GDP growth under the worst-case scenario.
That being said, Hung argued that going forward it would be important for the Chinese to create an economy that generated its own demand, as opposed to relying on demand from offshore.
She also pointed to several tailwinds in favour of Chinese equities, including that China corporates’ fundamentals and earnings were “holding up,” property inventory levels being at more “healthy” levels in China’s major cities, Beijing’s efforts in supply-side reforms, and a good margin of safety in Asia ex-Japan equities valuations.
Hung said there were four investment themes driving the Premium China strategy, the foremost among these being the country’s “consumption upgrade,” which she dubbed a “mega trend” given the fact that consumption in China accounted for 4.1 percentage points of the nation’s 6.9 per cent year-on-year GDP expansion in 2017.
She also noted that China’s disposable income per capita was up 9 per cent in 2017, while the urban income gap continued to narrow.
This consumption upgrade theme was illustrated by the fund’s investments in the Macau gaming sector, which Hung said had received a massive boost following today’s opening of the world's longest sea bridge that linked Macau, Hong Kong and the mainland China city of Zhuhai.
Another theme behind the Premium China strategy was “technology leaders,” or the long-term growth in e-commerce in China which was best exemplified by the manager’s investment in Alibaba or the “Amazon of China,” Hung said.
Hung also expected those existing players within the China e-commerce space to “become bigger and bigger,” with Alibaba itself set to expand at around 20 to 25 per cent a year.
The third investment theme that Hung said was behind the Premium China strategy was financials, with the Chinese insurance sector in A-Shares and H-shares trading at what she described as a “huge” margin of safety.
The final theme driving the Premium China strategy was “new opportunities,” which was shown via the fund’s investment in the Chinese education sector, Hung said. She said the growth of this sector remained intact given solid demand, fee growth, and a limited and imbalanced supply of higher education.
The chart below shows the performance of the Premium China Fund versus its sector since inception.
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