- China is progressing with its return to economic normality and a focus on idiosyncratic, secular growth opportunities is key when investing in Chinese equities.
- Our Emerging Markets and Asia Pacific Equities team is constructive on sector leaders in technology, consumption and health care1.
1. How are we tapping into China’s potential as the economy recovers?
- A vast, liquid equity market: China’s onshore A-Share market (Shanghai and Shenzhen) is the second largest in the world2, with more than 4,200 companies listed3. Additionally, investors could gain exposure to Chinese equities offshore via H-shares, red- and P-chips listed in Hong Kong as well as China-originated companies listed in Singapore. There are also N-chips, which are Chinese companies incorporated outside of China and listed in the US. Overall, a focus on quality and long-term growth potential is crucial.
- Opportunities onshore and offshore: China’s share in global equity market indices lags its size and economic scale4. Still, the inclusion of A-Shares in global indices such as MSCI and FTSE Russell has built momentum for passive inflows. Currently, foreign investors’ holdings of onshore China equities remain low5. An exposure to Chinese equities presents diversification benefits to a global portfolio.
China’s weight in selected indicators4
2. Where lies the long-term structural growth opportunities in China?
Consumption upgrading: The evolution of Chinese middle-class consumption is driving demand in discretionary, staples and technology sectors as consumers are seeking more choices, comfort and convenience.
- Digitalisation of lifestyle: a one-stop digital portal for the daily necessities, entertainment, mobile gaming and online health consultations and medical services.
- Rural e-commerce: rural consumers in China are emerging as another market opportunity as e-commerce takes off in the provincial areas. Rural customers now have direct access to the online marketplace, lowering sales costs and product prices.
Digital transformation: The adoption and usage of digital services surged during the public health crisis, especially as employees increasingly worked-from-home. Accelerated demand for IT products and cloud collaboration office solutions is benefitting some of the market leaders.
- Import substitution: China’s technology industry is embracing an inward pivot, and looking to make breakthroughs in core technologies to reduce its reliance on imported software. Core technologies include development of low-power processors and innovative technology for smart phones, the Internet of Things and electric vehicles.
Health care demand: Demand for health care services and products in China continues to grow, with increased spending in sectors such as health care infrastructure and preventive treatment.
- Medical equipment manufacturing: some Chinese enterprises are developing innovative therapeutics, and are harnessing smart technology in the treatment of serious diseases. Domestic medical equipment suppliers are also innovating to develop targeted devices, such as solutions for heart valve diseases.
- Pharmaceutical research and medical diagnostics: Innovative pharmaceuticals and diagnostics-related corporates could benefit from China’s long-term investment in research and development. China is also advancing the development of medical diagnostic technology including rapid testing and accurate pathological diagnosis.
Accessing long-term growth opportunities across Asia