Matthews Asia tips Chinese consumer stocks as drivers of economic growth
Chinese consumer stocks are taking up the bulk of equity investment being made in the world’s second-largest economy, according to Francisco-based investment strategist Matthews Asia, as domestic consumption grows in importance towards the country’s overall economic growth.
About 90 per cent of the 100-plus mainland- or Hong Kong-listed Chinese companies being traded by the firm are concentrated in the consumer and service industries, said Andy Rothman, its investment strategist for the region in an interview in Shanghai.
Spending by Chinese consumers contributed to 65 per cent of economic expansion in the third quarter, 10 percentage points higher than five years ago, he said.
While official data released on Thursday showed China’s growth slowed slightly to 6.8 per cent in the third quarter, with industrial production and fixed-asset investment largely in line with economists’ estimates, the bigger picture of investing in the Asian nation remains in place for Rothman.
That’s based on income growth re-acceleration, the proportion of urban employment from private companies continuing to rise, President Xi Jinping’s deleveraging campaign paying off by keeping debt levels at large state-owned companies stable, and more bank loans being channelled to more efficient and productive firms.
All of those things combined lead me to feel, this is still the best consumer story in the world for investors
Andy Rothman, Matthews Asia’s investment strategist for the region
“All of those things combined lead me to feel, this is still the best consumer story in the world for investors,” he said.
“When you invest in China, you are not really investing in GDP growth. Whether it’s 6 or 6.8 per cent is really not going to change the way we invest in this country. It’s still strong growth.”
Chinese disposable incomes increased 7.5 per cent from a year ago in the first three quarters, compared with a 7.3 per cent growth in the first half, the country’s statistics bureau said on Thursday. Retail sales rose by better-than-estimated 10.3 per cent last month.
Matthews Asia has US$31 billion in assets under management and almost a quarter of that is allocated to Chinese stocks. Rothman did not specify any specific Chinese company his firm owns.
A gauge of consumer staple stocks on the CSI 300 Index, tracking the 300 most valuable mainland-listed companies, rose to a record high on Thursday.
It is currently valued at 25 times projected earnings for the following 12 months, the most expensive in two years, according to data compiled by Bloomberg.
In Hong Kong, China Mengniu Dairy also rose within 0.2 per cent of its all-time high set in April 2015 this month. The stock trades at 29 times estimated earnings for this year, Bloomberg data showed.
Rothman said Matthews Asia plans to stick to its strategy of picking Chinese consumer stocks that are reasonably priced, despite the strong industry fundamentals.
The median forward price-earnings ratio of the Chinese companies held by the US firm is a mere 15 times, he said.
“I have a lot of confidence the Chinese economy is moving in a healthy direction,” he said.
“The overall economic environment for investing in China is going to remain very strong. But then the challenge really is finding the right stocks.”