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Readers who attended our latest event or watched online probably noticed that none of the four managers that spoke were particularly upbeat about China’s prospects – although it should be said that one was a Vietnam country specialist.
The key points here were that the country’s long period of high economic growth may be at an end, with high levels of debt and an aging population combing to make life tougher in the country.
However, and as those managers also pointed out, that growth has not been particularly kind to investors anyway.
For instance, the Chinese economy has seen annualised growth of approximately 9% since 1993. But the MSCI China Index has delivered tepid returns of 1.3% in annualised dollar terms over the same period, meaning passive investors in an ETF tracking the index would have lost money in real terms.
Does this mean China is off the table? No, but it was interesting to see the focus is on higher end consumer goods in the world’s second-largest economy.
For instance, Robin Parbrook, manager of Schroder Asia Total Return (ATR) is playing into that theme via exposure to luxury goods group LVMH and casino operator Las Vegas Sands, neither of which, it should be noted, is listed in China or Hong Kong.
Similar sentiment was echoed by Elizabeth Kwik, Manager of abrdn China (ACIC) when we spoke earlier this year. For instance, ACIC has been playing into this theme by investing in duty free operator CTGDF and cosmetics brand Proya.
Pruksa Iamthongthong, Co-Manager of abrdn stablemate Asia Dragon (DGN), made some similar arguments when we spoke this week. During our conversation, Pruksa acknowledged that investors will have to be more selective in China and aim more for consumer goods growth among the upper and upper-middle classes – something that can seem peculiar when you remember you’re talking about an ostensibly communist country.
As all of this suggests, managers may not be particularly optimistic about China as a whole but they also aren’t completely cutting their exposure to the country. And just as taking a passive approach to the market over the past couple of decades would have yielded poor returns, it’s plausible a more targeted approach to themes, such as higher end consumer growth, could deliver better returns, even if China’s economic growth starts to cool off.
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