Our EM Equity team has visited China four times in the last year, but on this trip we were interested to see that sentiment has improved notably.
A recent pan-Asia conference we went to in Hong Kong was very well attended, and the buzzing restaurants and streets brought back memories of a time before the pandemic. Moving on to mainland China, our on-the-ground due diligence included:
A visit to a shopping centre owned by China Resources Land in Shenzhen. The company’s investment portfolio, which includes shopping centres and offices that it leases and manages, is growing rapidly.
A meeting with DaShenLin, a pharmaceutical group in Guangzhou, where we toured its headquarters, distribution centre, and a local pharmacy store.
A tour of Shenzhen Mindray, which manufactures patient monitoring, imaging and in-vitro equipment for hospitals. The company now generates 40% of its sales from overseas and continues to take global market share.
A visit to Shenzhen Inovance, which is exposed to the factory automation theme in China. Although its direct exports are limited, its sales have proven robust as many of its customers are export manufacturers.
Reflecting on our trip, we are left with an impression that investors had become too negative on the Chinese market. We’ve recently seen a strong rebound in Chinese stocks, valuations are still cheap, and we see a number of high return companies in China that we believe remain attractive over the longer term.
China does still have a number of long-term challenges, notably the ‘four Ds’ of debt, deflation, decoupling and demographics, which we discuss in our piece, as well as on the geopolitical front. However, should we see an improvement in some of these factors, we are hopeful that this isn’t just another short-lived relief rally for the market.
