Page 7 - DIY Investor Magazine | Issue 31

‘THESE THEMES ARE REPLICATED IN OTHER PARTS OF THE WORLD, BUT THE DIFFERENCE IN CHINA IS THE QUANTUM OF GROWTH’ EMERGING THEMES Within the new portfolio, the focus is firmly on the China of the future. As we see it, there are five key themes likely to define China from here. The first and, perhaps the most important, is the development of a domestic consumer economy. This has been an explicit goal of the Chinese government as it strives to move away from manufacturing-led growth. 1bn people with greater spending power creates significant opportunities for companies. In spite of these higher growth levels, Chinese equities remain at a discount to their US equivalent. Chinese companies are delivering high quality earnings growth, against a strong economic backdrop and yet this is not fully appreciated by international investors. OUR APPROACH At abrdn, we have been embedded in the China market for some time. We believe this experience is important: China brings a number of unique risks and, in particular, we believe it is important to invest through an ESG lens. We have built significant resources in both Hong Kong and Shanghai, plus proprietary ESG analysis. We seek out companies with strong balance sheets that can build and maintain high margins in competitive industries and have a proven track record. We want to find companies that are fully aware of risks and opportunities from ESG and will work with companies to help them improve their scores. Our approach blends quantitative screening, our own proprietary database, being ‘on the ground’ meeting management teams and using our expert network. From a universe of 1,600, we have 190 stocks in the universe where we do intense due diligence. The result is a high conviction portfolio of 30 to 60 stocks that reflects the structural growth trends in the Chinese economy. More information on the abrdn China Investment Company here > ‘A HIGH CONVICTION PORTFOLIO OF 30 TO 60 STOCKS THAT REFLECTS THE STRUCTURAL GROWTH TRENDS IN THE CHINESE ECONOMY’ Wages have risen significantly in recent years and this has led to higher household wealth. Spending is accelerating among wealthier households: for those households in the USD $25,000-$30,000 bracket, spending has grown over 800%. As wealth grows across China, we see more aspirational spending on higher premium products. This increasing wealth is having an impact elsewhere. It is leading to greater adoption of wealth management products, for example, another theme in the portfolio. It is also increasing demand for healthcare as an emerging middle class demands improved care, particularly in the wake of the pandemic. The digitisation theme is every bit as strong in China as it is in the rest of the World, particularly in the wake of the pandemic. Widespread adoption of technology among China’s vast population is creating opportunities across multiple sectors, including e-commerce and gaming, plus digital transformation and data centres. Investing in the energy transition is another fertile theme as China strives to meet its carbon neutrality ambitions. China is presently the world’s largest emitter of greenhouse gases, but is making significant progress in the development of ‘green’ solutions. As we see it, areas such as renewable energy, electric vehicles and new infrastructure should see significant growth. These themes are replicated in other parts of the world, but the difference in China is the quantum of growth. 7 Diy Investor Magazine · Nov 2021