Fidelity International Ltd. and Abrdn Plc are zeroing in on China-related industries they expect to be sheltered from slowing economic growth.
Fidelity is sticking to bullish bets on European luxury stocks as well as looking for AI-related investments in China. Abrdn favors state-owned property developers and electric vehicle manufacturers.
Picking winners has become increasingly challenging in China’s stock market as a rally triggered by the country’s reopening reverses and concern grows about weak consumer spending. The MSCI China Index has fallen about 18% since this year’s high in January and is down for the third year in a row.
Fidelity is optimistic about European luxury goods companies because they have large exposure to China and stand to benefit from increased travel by wealthier Chinese, said Taosha Wang, portfolio manager in Fidelity’s multi-asset investment team in Hong Kong. “That is one area benefiting from the improvement in mobility.”
An index of 11 of the biggest European luxury firms, including LVMH Moet Hennessy Louis Vuitton SE and Compagnie Financiere Richemont SA, has climbed about 25% this year.
For many luxury firms, the mainland has become a critical driver of growth. The country’s shoppers splurged on pricey handbags and jewelry in the first quarter after strict Covid Zero curbs were lifted, pushing LVMH’s share price to a record and briefly lifting it into the world’s 10 most valuable companies.
AI-related businesses are another industry expected to do well, Wang said.
“It can be a game changer in the way businesses use it and how it affects capital markets,” she said. “The picks and shovels of this new AI world will be cloud and chips, but also more specific use cases in terms of what types of software are developed.”
Abrdn meanwhile is navigating the economic gloom by targeting state-owned property firms with strong balance sheets, whether in stocks or credit, as a downturn in the nation’s vast real estate market persists.
State-owned developers will be among the companies that survive the slump in sales, said Louis Luo, head of Multi-Asset Investment Solutions, Greater China for Abrdn.
“It’s similar to distressed debt investing,” he said. “The property sector will slim down but this sector will be around for a long time. There must be consolidation and there will be winners.”
China’s home sales tumbled in June, snapping a four-month rebound. The value of new home sales by the 100 biggest real estate developers fell 28% from a year earlier, according to preliminary data from China Real Estate Information Corp. released Friday.
Abrdn’s multi-asset portfolios are also targeting companies with strong earnings growth that were hit hard by Covid, including companies in the clean energy sectors.
“China as an economy will continue to grow,” Luo said. “Green and EV companies can do very well.”
