Aim to capture growth trends in the leading region of recovery
Over the fourth quarter of 2020, China’s economy rebounded significantly and grew by 6.5% year-on-year1.
China's GDP growth1
Looking into 2021, we can expect China's GDP growth estimate to be 8.1%, outperforming that of developed markets2.
GDP growth estimates (%)2
Asian governments and corporates are already investing in digital technologies, especially China, with the rollout of 5G. We are positive on 5G-related sectors, including base stations, data centres, and upstream equipment.
E-commerce now accounts for 26% of China’s total retail sales3, with the gains being driven by activities in the third and lower-tier cities.
User breakdown of online payment apps in China, by tier of city4
The recent lockdown has also given rise to opportunities in areas related to online education, digital healthcare, and smart factories.
The post-pandemic world could see a move towards deglobalisation. We believe the beneficiaries will be companies that can leverage any increase in domestic consumption on the back of rising incomes, and firms capable of moving up the manufacturing value chain to run higher-margin businesses.
In terms of geopolitics, Sino-US trade tensions have started to encroach on financial markets. We expect more US-listed Chinese companies (Chinese ADRs), mainly in the “new economy” sectors, to seek a return-home listing, particularly on the Hong Kong Stock Exchange. This may suggest potential improvements in earnings growth and valuations5, which are positive for Hong Kong equity investors.
1. Bloomberg, 18 January 2021.
2. IMF, Bloomberg, 26 January 2021. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline or other expectations, and is only as current as of the date indicated. There is no assurance that such events will occur, and may be significantly different than that shown here. The information in this material including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.
3. National Bureau of Statistics of China, Credit Suisse, as of May 2020.
4. QuestMobile, as of 30 September 2019.
5. Bloomberg, data as of 26 February 2021. Hang Seng index is currently trading at 15.3 times price-to-earnings ratio, with an estimate earning growth of 18.2% for the 2021 fiscal year.