Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
China’s self-sufficiency drive should put ‘local champions’ on the radar: Ninety One
While China’s recent drive toward self-sufficiency may appear protectionist, from an investment perspective it’s likely to set quality sectors and companies up for strong long-term growth as the country continues to shed its ‘uninvestable’ label, according to global investment manager Ninety One.
After years of disorder characterised by heightened political tensions with the US and supply chain disruptions prompted by the COVID-19 pandemic, January marked a turning point for China’s equity markets. The Hang Seng Index, which had halved from February 2021 through October, rose 50 per cent as the Chinese economy began its long-delayed reopening after the pandemic.
Another key development came at the opening of the National People’s Congress in early March, when President Xi Jinping’s government sought to reassure the country’s private sector and outlined a new policy focus on domestic growth and high-quality development.
According to Ninety One’s Asia franchise portfolio manager Charlie Dutton (pictured) and analyst Mendy Zhang, this trend toward localisation and the prioritisation of “domestic champions over foreign alternatives” is set to benefit specific sectors and companies locally, particularly in science, healthcare and technology. For investors seeking access to Chinese equities, that spells opportunity.
“At a time when relations with the US are expected to remain fraught for the long term, we believe it would be prudent to invest in pockets of the market likely to benefit from policy tailwinds,” Dutton and Zhang wrote in a recent research note titled “China’s self-sufficiency opportunity”.
“Beijing’s drive toward self-sufficiency – ensuring that products are made or innovated in China – will inevitably impact a number of local companies,” they said.
In tech, for instance, China is currently boasting some “fascinating opportunities” in software, in part because Chinese software companies have “still got many decades to go before they’re evolved to the same level as Europe and the US,” Dutton said. As a result, he expects significant policy tailwinds to emerge to support Chinese software companies that will create long-term revenue benefits.
Dutton and Zhang named Kingsoft, “China’s version of Microsoft”, as having an especially compelling growth runway thanks to the government’s decision to shift users from Microsoft’s software to Kingsoft’s. Another “local champion” is Glodon, which produces software aimed at improving the safety, efficiency and profitability of China’s property sector.
“Given that market typically operates on low profit margins of around 3 per cent, demand for Glodon’s software, which can enable cost savings, has been strong, evidenced by its 20 per cent annual revenue growth over the past five years,” Dutton and Zhang wrote.
“The same rationale applies to the healthcare sector, with Beijing striving to become more self-sufficient in cutting-edge technology such as medical devices.” Zhang cited medical device producer Mindray, which “has an almost impregnable position in a structurally growing market fully backed by the government”.
And in the consumer space, Dutton and Zhang said, staples producers Fuling Zhacai and Kweichow Moutai are both in strong positions and projected to enjoy extended growth.
“So, while China’s trend toward localisation might intuitively sound introverted, we believe the opposite could be true,” they said. “An uplift in local expertise could help the country further entrench its position as an indispensable link in the global economy, with several quality sectors being notable beneficiaries.”
