China plans to dramatically boost consumption over the next five years – but which companies will benefit if it succeeds?
China, the world’s second-largest economy, has unveiled its first five-year plan dedicated to boosting domestic consumption. The government wants annual retail sales of 60 trillion yuan (£6.6 trillion) by 2030 and will support elderly care, childcare, health, tourism, sports and education*. For investors, the question is how best to position a portfolio to benefit from this push. Here, we look at some of the sectors, companies and investment funds that could be well placed.
How can you benefit?
There are a few options. You can buy a fund that focuses solely on China or opt for a broader Asia portfolio for diversification. It all depends on your goals and existing holdings. Here we highlight interesting companies in a number of sectors – and the various Asian and Chinese-specific portfolios invested in them.
Consumer goods
We’ll start with consumer-focused names. Midea is a Chinese consumer appliances and smart home company that produces air conditioners, fridges, washing machines and other equipment. The FSSA Greater China Growth fund, run by Martin Lau and Helen Chen, is an investor**. They favour well-managed businesses with good corporate governance. This fund has been a firm favourite for many years because it’s consistently delivered strong returns, irrespective of the market backdrop.
The fund also holds Haier**. This is another leading name in the design and manufacture of home appliances, consumer electronics and smart living solutions. Reports suggest the China smart appliances market will grow at a compound annual growth rate of almost 12% over the next few years. By 2030, it could be worth $12.92 billion***.
Services and tourism
Technology company Meituan provides a platform for ordering food, goods and local services. It’s basically a combination of Deliveroo and Just Eat, plus other areas. This could be a prime beneficiary of people having more spare money. The stock is held by the Baillie Gifford Pacific fund****, a high-conviction growth fund focused on the long term. We like its focus on identifying companies with durable growth potential, alongside its ability to move between different parts of the market.
Then there’s online travel agency trip.com. The company operates under several brand names, including Trip.com in mainland China. The stock is held by the FSSA Global Emerging Markets Focus fund^. Manager Rasmus Nemmoe invests in 40-45 companies demonstrating predictable long-term growth.
Digital consumption and e-commerce
E-commerce giant Alibaba operates several domestically-focused platforms in China. These include Taobao Marketplace, Tmall and 1688.com. Taobao is China’s largest consumer-to-consumer online shopping platform, launched 23 years ago, that provides access to fashion, crafts, and other products. It’s one of the largest holdings in the M&G Asian fund^^. This is a high-conviction portfolio that focuses on business quality, industry trends and valuations.
Another major tech name that can’t be overlooked is Tencent. Its business interests include running the WeChat app and publishing video games such as Honor of Kings. Plenty of funds hold the stock, including Fidelity Asia Pacific Opportunities^^^. We believe manager Anthony Srom’s high conviction and disciplined approach help him stand out from his peers.
Support
Support for the elderly is a priority for the Chinese government and can be played through China Construction Bank, which addresses the financing needs of customers in this industry. The bank is in the Guinness Asian Equity Income fund^^^, which has a well-defined process and favours holding equally-weighted stock positions. It also has a one-in, one-out policy. We like the approach taken by the three-strong manager team, which focuses on companies that can sustainably grow their dividends.
