Global fund managers look to new industries to sustain China growth

Key sectors in new consumer-driven economy identified by funds as investment opportunities

PUBLISHED : Thursday, 09 January, 2014, 1:27am
UPDATED : Thursday, 09 January, 2014, 4:58am

Top global fund managers see fresh investment opportunities on the mainland in sectors such as health care, insurance and information technology as the leadership harnesses new drivers to sustain growth by steering it into a consumption-led economy.

Hong Kong was the worst-performing developed market globally last year, due in big part to concerns over the slowing growth on the mainland. The mainland's benchmark Shanghai Composite Index was Asia's worst performer on the back of the same concerns.

However, fund mangers now say some of the market corrections have been excessive and that picking the right stocks in new industries at this point can pay off as Beijing adjusts the growth model.

Raymond Ma, who manages the China Consumption Fund at Fidelity, sees insurance, health care, information technology, consumer staples and consumer discretionary as the "New China" sectors that are likely to do well in coming years.

The five industries' weighting in the MSCI China Index, about 30 per cent, was expected to double to more than 60 per cent in the next five years, Ma said.

"The third plenary policy document [issued after a key Communist Party meeting in November] was above my expectations," Ma said. "It answers almost all challenges arising from Old China to New China's transition.

"The government has offered a clear roadmap through the document with 60 specific measures that are actionable."

Consumption, for example, is expected to penetrate to smaller cities as the hukou system of urban registration was abolished there. Meanwhile, brokers would benefit as Beijing restarts A-share initial public offerings after suspending listings for more than a year, Ma said.

"China's consumer sectors offer plenty of big-cap ideas," he said, citing Alibaba as an example. The e-commerce giant's market capitalisation could reach nearly US$80 billion after listing, which by itself would be more than 70 per cent of the total market capitalisation of consumption stocks in Asean nations, he said.

Separately, BNP Paribas said it was upbeat on the wider China insurance sector this year, specifically due to investment margins and premium growth, given the fact that Hong Kong and the mainland were ageing faster than the rest of Asia. Its top picks for the coming year are AIA and Ping An, given the strong premium growth momentum.

Meanwhile, Credit Agricole CIB recommends buying yuan bonds as it expects a substantial trade surplus and portfolio inflows will help the currency reach 6 to the US dollar by the end of the year.

The Hang Seng Index rose 1.25 per cent yesterday to finish at 22,996.59 points.