A silver lining amid uncertainties over China’s economy
Investors globally have been fretting about the health of China’s economy for many months. And as they worry about the pace of the country’s structural reforms, some investors may be missing out on the gems that are emerging as China moves from a manufacturing to a service economy.
These opportunities are rarely discussed and have largely been neglected by investors of late, says Craig Chen, Chief Investment Officer at E Fund Management (HK). “There are certain trends in the Chinese economy that will become more evident and more positive going forward and they will offset the negatives in the economy,” he adds.
The underlying transition, Chen says, is becoming very noticeable – the information technology, value-add manufacturing, services and logistics, entertainment and healthcare industries in China have been making significant progress, and companies in these sectors do warrant a closer look by investors.
China’s vast investment in top-class infrastructure over the past decade also helped to bridge the connectivity gap across the country, enabling greater growth of the domestic economy. Among them:
- New airports, roads, ports and high-speed rail networks are increasing the mobility of the Mainland Chinese population as well as allowing more companies to move inroad into the lower-tier cities. This has given rise to opportunities to develop consumer and other industrial franchises in many cities within China.
- The advancement of mobile internet has aided the development of world-class technology companies in China, while making knowledge, goods and services more readily accessible for the rural population. Advanced mobile internet technology has also given rise to a booming domestic and cross-border e-commerce industry. China, for example, is home to the largest and fastest-growing mobile payments market in the world. And independent market research company eMarketer estimates there will be 195.3 million people using proximity mobile payments technology in 2016, an increase of 45.8% from a year ago.
- The fast development of infrastructure and the boom in e-commerce have led to the increased development of top-tier logistics facilities and warehouses in China.
And as incomes rise, consumer needs are also shifting with Chinese customers paying more attention to branding, technological advancement and quality. Companies, in response, are upgrading to deliver a better overall client experience.
This Chinese consumer demand for quality has also prompted some manufacturers to move up the manufacturing value-chain toward the greater use of automation. Some export-oriented companies in China, despite a volatile foreign currency market, are moving ahead of the competition through increased spending on capital expenditure, automation, research and development, and acquisition of advanced technologies. These companies have also stepped up their branding and global distribution.
To tap into these opportunities, investors can consider investing not only just in markets within China, but also to put their funds into overseas companies that supply services or goods to China.
“We see bright spots in the Chinese economy,” Chen says. “We see the transformation from manufacturing investment to a service industry and where companies are benefiting from that; the upgrading of business services to meet demand; the beneficiaries from an ageing society; the automation trend in manufacturing; internet and mobile internet growth – we see many opportunities.”
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E Fund won dual awards as ‘Fund House of the Year’ for both China and China offshore markets from AsianInvestor Asset Management Awards 2016. Awards dated a specific year reflect performance as at the previous calendar year end.