Portfolio Manager Colin Dishington visited China in December 2023 as part of his ongoing research for the Martin Currie Emerging Markets Strategy. He met with a host of companies across several sectors and it was clear to him that it’s ‘business as usual’ in China. We will explore a few of his key takeaways here.
-
Despite the prevailing issues in the real estate sector, property sales are still growing in the tier 1 and 2 city centres.
What is the general feeling of companies about the macro backdrop in China?
Companies are broadly constructive on the economic environment and there are pockets of strength. This varies across sectors, from semiconductor companies seeing a gentle recovery in the smartphone market, to online recruiters observing a steady recovery in job postings across all sectors. Despite the prevailing issues in the real estate sector, property sales are still growing in the tier 1 and 2 city centres. One shopping mall operator even reported that their tenants had seen same-store sales growth of over 20% in the first 10 months of 2023.
These are very encouraging comments from companies which tell us that they are running as normal and that despite valuation headwinds, they are optimistic about the macro backdrop.
Are there any trends you've noticed through your meetings during this trip?
A clear trend which has become apparent is import substitution, as product demand shifts from international suppliers to domestic products and services. These dynamics are creating new opportunities for investors, but the drivers of this substitution are not uniform in nature. For example, within healthcare, companies that are winning business are doing so by offering superior and world leading technology at premium prices, while others are taking market share by simply offering lower prices. Additionally, when meeting an industrial automation player, they highlighted that they see customisation and speed of delivery as key differentiators from their developed market competitors.
A frequent theme in the papers is new regulation, what is the feeling on the ground?
As may be surprising to global investors, most companies I met with consider the current regulatory environment in China to be constructive. In the healthcare industry, the most recent round of volume-based pricing cuts has proved less aggressive than in previous iterations. Despite recent newsflow, in the gaming sector, internet companies believe the regulatory environment has normalised and expect this to remain “supportive” of the industry.
Furthermore, a company in the solar power supply chain has welcomed new regulation which they believe is helping to reduce the pricing volatility for some of their products.
What about geopolitics, another media favourite? How is that impacting company behaviour and overseas activity?
A clear theme was that Chinese companies overseas ambitions have not been dampened by the widely reported trade disputes. One industrial manufacturer talked of their target to eventually generate 75% of their revenues from overseas. Other companies have accelerated their build out of overseas distribution and in some cases offshore production.
What would you say was a highlight of your trip?
Outside of gathering rich insights on investee and other companies, I also took a number of trips in robotaxis. This was not only good fun but quite enlightening given the different driving styles exhibited by competing service providers. I actually preferred the more aggressive one as it felt more like a real driver!
It is clear from Colin’s visit that the feeling on the ground is much more positive than you might expect, given the negative sentiment surrounding Chinese equities, particularly in 2023.
China remains a key part of the emerging market asset class and is rich in long-term investment opportunities. The short-term headwinds have been challenging but our conversations with companies provide a more constructive and positive outlook. We are optimistic about what the future holds.
Important Information
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns.
The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
The information provided should not be considered a recommendation to purchase or sell any particular strategy/fund/security. It should not be assumed that any of the securities discussed here were or will prove to be profitable.
The analysis of Environmental, Social and Governance (ESG) factors forms an important part of the investment process and helps inform investment decisions. The strategy/ies do not necessarily target particular sustainability outcomes.
Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. Accordingly, investment in emerging markets is generally characterised by higher levels of risk than investment in fully developed markets.
- The strategy may invest in derivatives Index futures and FX forwards to obtain, increase or reduce exposure to underlying assets. The use of derivatives may result in greater fluctuations of returns due to the value of the derivative not moving in line with the underlying asset. Certain types of derivatives can be difficult to purchase or sell in certain market conditions.
For wholesale investors in Australia:
This material is provided on the basis that you are a wholesale client. MCIM has entered an Intermediary arrangement with Franklin Templeton Australia Limited (ABN 76 004 835 849) (AFSL No. 240827) (FTAL) to facilitate the provision of financial services by MCIM to wholesale investors in Australia. Franklin Templeton Australia Limited is part of Franklin Resources, Inc., and holds an Australian Financial Services Licence (AFSL No. AFSL240827) issued pursuant to the Corporations Act 2001.
For professional investors in Canada.
This material is intended for residents in, or incorporated in, Canada and are a Permitted Client for the purposes of MI 31-103. The information on this section of the website is not intended for use by any other person, including members of the public.
Martin Currie Inc, incorporated in New York with its registered office at 280 Park Avenue, New York, NY 10017 and having a UK branch registered in Scotland (no SF000300), Head office, 5 Morrison Street, 2nd floor, Edinburgh, EH3 8BH, Tel: +44 (0) 131 229 5252 Fax: +44 (0) 131 222 2532 www.martincurrie.com, operates under the International Adviser Exemption with the Ontario Securities Commission (‘OSC’) and is therefore currently not required to be registered as a portfolio manager for the purposes of MI 31-103. Martin Currie Inc. is also authorised by the UK Financial Conduct Authority.
For the avoidance of doubt, nothing excludes, limits or restricts our obligations to you under the UK Financial Services and Market Act 2000, National Instruments or any other applicable law or regulation.
The opinions and views in this website do not take into account your individual circumstances, objectives, or needs and are not intended to be recommendations of particular financial instruments or strategies to you.
This website does not identify all the risks (direct or indirect) or other considerations which might be material to you when entering any financial transaction. You should consult with your professional advisers before undertaking any investment activity. The information provided on this website should not be treated as advice or a recommendation to buy or sell any particular security or other investment. The information on this website has not been reviewed by any competent regulatory authority.
For professional investors:
In the People’s Republic of China:
This document does not constitute a public offer of the strategy, whether by sale or subscription, in the People’s Republic of China (the “PRC”). These strategies are not being offered or sold directly or indirectly in the PRC to or for the benefit of, legal or natural persons of the PRC.
Further, no legal or natural persons of the PRC may directly or indirectly purchase any of the strategy or any beneficial interest therein without obtaining all prior PRC’s governmental approvals that are required, whether statutorily or otherwise. Persons who come into possession of this document are required by the issuer and its representatives to observe these restrictions.
In Hong Kong:
The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.
In South Korea:
This document is for information purposes only. It is prepared and presented to provide an introduction to the business of MCIM and its related companies (collectively known as ‘Martin Currie’). This document does not constitute an offer to sell or a solicitation of any offer to invest in any security, fund or other vehicle managed or advised by Martin Currie.
None of the security(ies), fund(s) or vehicle(s) managed by or advised by Martin Currie are registered in South Korea under the Financial Investment Services and Capital Markets Act of Korea and accordingly, none of these instruments nor any interest therein may be offered, sold or delivered, or offered or sold to any person for re-offering or resale, directly or indirectly, in South Korea or to any resident of South Korea except pursuant to applicable laws and regulations of South Korea.
Martin Currie is not registered with or regulated by any regulatory authorities in South Korea.