Citywire Selector - For Professional Investors

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

A-rated manager’s four ways to play Xi’s ‘awesome China’

A-rated manager’s four ways to play Xi’s ‘awesome China’

China’s Communist Party Congress concluded with little in the way of economic outlook but with Xi Jingping tightening his grip on power in an era heralded as ‘awesome China’.

With Xi likely to remain in power beyond 2022, how are fund managers positioning their portfolios to capitalise on the continuity provided by the sitting rule?

Citywire A-rated Edmund Harriss, who oversees six funds at Guinness Asset Management including the Asian Equity Income strategy, believes Xi’s new term will focus on wealth and power.

Having already embarked on huge industrial and economic projects, Harriss said the focus will shift from cheap labour and mass production towards higher value-added production. Here are the four stocks, sectors and themes set to prosper.

#1 - Smart phones

Stock example: AAC Technologies

With the move towards a higher quality products, Harriss said China-based companies are becoming increasingly important players in an assets-rich market. Here he is looking for entrenched companies with good customer relations.

‘AAC Technologies is a company already manufacturing advanced, high quality components used in major smartphone brands, and the company has been a strong performer for a while.

‘As an important supplier of acoustic and haptics components for smartphones, such as the iPhone, it is a good example of a company turning its competitive advantage into persistent returns on capital.’

#2 – Electric vehicles

Stock example: Hanon Systems

China as the world’s largest car market and plans to steer itself to the front of the queue when it comes to electric vehicles. Harris said companies such as Korean group Hanon Systems – which specialises in climate control systems – can feed into this due to their strong market position.

‘China already has the world’s largest automobile market and now policymakers are aiming to develop domestic manufacturers which will be leaders in producing electric vehicles.

‘Hanon should benefit from this drive as it is one of the few suppliers in the world who can offer a full range of products used in climate control systems. This is especially important with electric vehicles where lithium batteries are very sensitive to changes to temperature – hence the importance of climate control systems.’

#3 – Consumption changes

Stock example: China Lilang

Harriss said the manufacturing industry in China is moving to produce more higher-value added goods which will lead to wage growth acceleration, as well as middle class consumption continuing to grow. This will benefit China Lilang, most notably, which designs and produces menswear.

‘The chief designer has been hired from Armani; new product lines have been added in shoes, underwear and casual clothing; proprietary fabrics make up a bigger proportion of usage and their quality has improved; the distribution channel has shifted away from department stores to shopping malls.

‘The management has proven itself to be both dynamic and adaptable, reflecting rapidly evolving Chinese consumer patterns. Strong results at the interim stage lifted the stock into our top five performers this quarter.’

#4 – Complex needs

Stock example: Luk Fook

Tied to the consumption theme is the fact that Chinese people are using their newfound disposal income to travel more, which, Harriss, said will have a knock-on effect for neighbouring economies. He highlighted Hong Kong-based jewellery group Luk Fook as well-positioned here.

‘The company generates most of its profit in Hong Kong but has had to adapt its business model as tourist inflows from the mainland have dropped,’ he said.

‘The company has responded by closing unprofitable stores in Hong Kong and opening new stores in the mainland to better respond to the changes in the market. As a result same-store-sales are now growing in both regions and we expect the company to continue growing its presence in the mainland.' 

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Luxembourg Forum

    Citywire Luxembourg Forum

  • Citywire DACH 2017

    Citywire DACH 2017

  • Citywire Italy 2017

    Citywire Italy 2017

  • Citywire Berlin 2017

    Citywire Berlin 2017

  • Citywire Miami 2017

    Citywire Miami 2017

  • Citywire Professional Buyer

    Citywire Professional Buyer

  • Citywire Madrid 2017

    Citywire Madrid 2017

  • Citywire Switzerland Retreat 2017

    Citywire Switzerland Retreat 2017

  • Citywire Amsterdam 2017

    Citywire Amsterdam 2017

  • Citywire Frankfurt 2017

    Citywire Frankfurt 2017

  • Citywire Alternative Ucits Retreat 2017

    Citywire Alternative Ucits Retreat 2017

  • Citywire Paris 2017

    Citywire Paris 2017

  • Citywire Milan 2017

    Citywire Milan 2017

  • Citywire Deutschland 2017

    Citywire Deutschland 2017

  • Citywire DACH 2017

    Citywire DACH 2017

  • Citywire Italy 2016

    Citywire Italy 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Alt Ucits 2016

    Citywire Alt Ucits 2016