The economic reopening could provide a cyclical boost to long-term structural growth opportunities in China, spanning technology, consumption and carbon neutrality1. Companies with lean cost structures and strong pricing power are well-suited to ride the reopening trend, in our view.
1. Consumption
China’s reopening rebound is likely to be driven by consumption rather than investment4. This recovery will likely be centred on consumer-sensitive sectors such as tourism and retail markets. Growing affluence and an expanding middle class will continue to support the ‘premiumisation’ trend while industry consolidation in some areas can help compound growth.
Robust healthcare spending and investments will continue to drive opportunities in areas such as medical equipment and structural outsourcing, including both contract research organisations (CROs) and contract manufacturing organisations (CMOs).
2. Technology
Software companies continue to ride the digitalisation trend, aided in part by the government’s support for the creation of domestic champions.
Automation and other productivity enablers in the industrial and technology sectors are also key beneficiaries in the drive to boost growth through productivity improvements, in the face of a ‘greying’ workforce and rising wages. The continued focus on import substitution, self-sufficiency and national security will also help to buoy the growth of strategic sectors such as semiconductors.
3. Carbon neutrality
Sectors supporting the development of a “Green Economy” such as electric vehicles (EV), solar and advanced manufacturing are likely to play a key role in generating sustainable growth over time3.
Rising EV penetration, stricter emission controls and standards, and faster adoption of renewable energy could continue to support revenue and earnings growth of related segments. Additionally, the EV supply chain and renewables such as solar power supply chains, installation, and storage present other interesting opportunities. This is particularly important considering that China continues to take global market share in solar production.