Playing China’s consumer revolution
Dale Nicholls is portfolio Manager of the Fidelity China Special Situations PLC fund and highlights the play of China’s consumer revolution through three sectors.
Relative to the developed world, consumer products and services in China remain vastly underpenetrated and this offers significant structural growth potential.
In particular, rising internet usage is redefining the landscape, particularly in rural markets where traditional brick and mortar enterprises have never really been built-out.
Many consumers are moving straight to buying goods online and e-commerce continues to grow apace.
Gaming is a related segment which remains a key area of focus for the portfolio, with Netease a high conviction holding given its well-established gaming intellectual property.
In my view, the company offers strong long-term potential; its strong franchise meaning it is well placed to leverage growth opportunities, especially as smartphone usage in China continues to increase.
Healthcare is another area which is fast becoming one of China’s new engines of growth and we are seeing some strong research and development capabilities emerge.
Hutchison China MediTech, a drug innovator focused on oncology and immunology, is an example of a high conviction holding in this area.
Its stock price has struggled in recent times, but I remain positive on the longer-term investment case given its encouraging product pipeline and strong drug-specific partnerships with global health care leaders such as AstraZeneca and Ely Lilly.
As ever, the policy imperatives and reform focus of the Chinese government remains a key consideration when investing in China.
In this regard, I am encouraged by the apparent commitment of the authorities to reduce the level of pollution and promote the use and development of clean energy.
This favourable policy backdrop supports the outlook for the likes of CT Environmental Group, a leader in industrial wastewater and sludge treatment business.
CT operates in an industry with high entry barriers and stands to benefit from the government’s increasingly stringent environmental regulations.