Some investors believe that a lackluster economic background in China should not stop Wall Street from investing in China’s second largest economy. China’s stocks have been under pressure as Beijing has dealt with a struggling property sector and the slower than expected recovery from the Covid-19 epidemic. The iShares MSCI China ETF is down over 7% in this year. The S & P500 has risen 16% in the same time period. Other concerns include: the country has high youth unemployment rates, weak consumer spending and an economy that is only on track to grow at a slow pace. Ben Kirby, co-head investments at Thornburg Investment Management, says that there are still some great stock ideas for emerging markets investors, as long as they know where to look. “China’s growth will be slower in
than in the past. Kirby said, “I mean, it’s inevitable.” But that doesn’t mean you can’t find some great investments there. Kirby, a consumer growth bets expert, named Yum China among his quality stock ideas. Duke MBA predicts that the company behind Pizza Hut and KFC will benefit from secular trends, and will double its number of stores in China within the next decade. Yum China, he believes, could also benefit from the rebound in Chinese consumer spending. The fund manager said that although the recovery from the pandemic is taking longer than expected, it is still occurring. This means consumer plays such as Yum China will see sales growth eventually. When you look at sell-side estimates and consensus, they are basically forecasting a same-store growth of Yum China between 2% and 3%. This is what you would expect in a typical year, 2% or 3%. Kirby explained that it’s a baseline. Kirby said that this year, the demand should be higher and that next year it will be higher because people are now able to leave their homes. Kirby also sees Imeik Technology Development as a “off-the-beaten path” business opportunity. Imeik Technology Development, a maker of biomedical materials and hyaluronic acids, will benefit from the growing spending by middle-class consumers on beauty and wellness treatments. The fund manager does not expect this spending category to be affected by macroeconomic weakness. “Fifteen year ago, we discussed steel consumption in China. We said that the Chinese economy required a lot more steel consumption. Kirby stated, “Now we are talking about Botox consumption in China.” The economy has changed dramatically. Kirby said that the overall consumption of these types of health and beauty items in China is a fraction of its U.S. counterpart. This is yet another company that can benefit from a Chinese macro-economy growth of 4%, 3% or 5%. It is unlikely to have an impact on the penetration story of a firm like this. Kirby believes both companies will be “fairly protected” from macroeconomic changes and that both trade at attractive valuations. Yum China has increased by over 4% this year. Imeik, which is only traded in the local market, is expected to fall by 23% between 2023 and 2024. James Donald, portfolio manager at Lazard Investments, also believes that China is still an investable market. He cites consumer electronics company Lenovo among the most attractive investments. Lenovo, as a multinational company, is more exposed to global economic conditions than just the domestic. The U.S. listed shares have risen 23% in the past year. Thornburg’s Kirby advises investors to select individual stories rather than buying the index, despite the fact that concerns remain about the Chinese equity markets. Kirby stated, “I am not overly optimistic about the index.” “But there are many great opportunities within the listed companies.” “[the]
