Finding investment opportunities in China’s new economy
China’s policy-makers are encouraging the growth of new economy sectors. The nation’s 13th Five-Year Economic Plan (2016-2020) identified seven high-priority new economy industries to benefit from the Chinese government’s push to develop its new economy industries, ranging from artificial intelligence to biotechnology and new energy.
The promise that favourable government policies will boost growth across new economy sectors has been accompanied by tighter rules across industries ranging from online gaming to advertising, education and pharmaceuticals. These types of policy moves create greater certainty, but they also highlight the benefits of diversification and taking a broad-based approach to new economy companies listed across a range of stock exchanges, by limiting the disruption and risks across a number of constituents.
Launched in September last year, the Hang Seng China New Economy Index (HSCNE) tracks the performance of China’s new economy companies listed in Hong Kong, mainland China and the US.
Recognising the dynamic potential of digital transformation, this index steps away from China’s mature traditional economy (for example, financial, manufacturing and property) sectors noted for lower volatility and returns, in order to capture opportunities created by new growth drivers, such as technology, energy and consumer goods and services sectors.
According to Hang Seng Indexes, the HSCNE has achieved overall growth of 44% since base date (December 2014). In terms of GDP growth, the nation’s new economy sector has expanded by 16.1% annually since 2007, almost double that of overall GDP growth.
Average Annual Growth Rate (2007-2016)
Source: Chinese Academy of Social Sciences
The HSCNE index tracks a range of securities in 29 sub-sectors, including e-commerce and internet services, telecommunication services, pharmaceuticals, and home appliances. Additionally, companies in the consumer goods, consumer services and financials industries that mainly conduct their business using an online platform are also eligible for inclusion. Sector requirements will be reviewed annually to stay ahead of these ever-evolving new economy opportunities.
REAPING DIVERSIFICATON REWARDS
In the case of the HSCNE index, IT stocks account for the largest share (around 42%) of this index, followed by consumer goods (around 27%) and consumer services (around 12%).
Source: Hang Seng Indexes
The top five information technology (IT) stocks included in the HSCNE are listed on four different stocks exchanges, including: NYSE-listed Alibaba, Nasdaq-listed Baidu and NetEase, Hong Kong-listed Tencent and Shenzhen-listed Hikvision.
CHALLENGES AND OPPORTUNITIES
New economy companies may relatively insulated from challenge that some traditional economy companies are facing. For example, many of these new economy companies typically operate asset-light business models. This means they are free from the huge debt burdens weighing on more traditional economy companies operating in sectors such as property development and manufacturing.
As technological disruption spurs growth in subsectors ranging from the sharing economy to AI, big data and cloud computing, this growth is accompanied by uncertainty about which business models will succeed.
For investors seeking opportunities to ride the rise of China’s new economy, HSCNE provides both a comprehensive benchmark and diversification across sectors via its 100 constituent companies.
Learn more about the Hang Seng China New Economy Index here
Important Information
Investments involve risks. Information provided herein is for information and reference only and does not constitute nor is it intended to be construed as any professional advice, offer or solicitation to deal in any of investments mentioned herein. The past performance is not indicative of future performance.