Cash in on young Chinese consumers

A professional investor tells us where he’d put his money. This week: Howard Wang of the JPMorgan China Growth & Income trust picks three favourites

When investing in any emerging market, looking beyond immediate uncertainty can be challenging. However, with a total population of over 1.4 billion, China’s scope for long-term structural growth remains appealing, especially in sectors such as healthcare, technology and consumption. These areas are capitalising on the country’s transition to a more consumer-driven economy.

Since mid-January, Covid-19 has changed the landscape, at least temporarily. The situation is highly uncertain and still may worsen before it improves. Nonetheless, the fact that the Chinese government has mobilised its resources comprehensively and quickly suggests that the impact on consumption and business confidence may be cyclical rather than structural. So as long-term investors we continue to be positioned to benefit from the secular growth in emerging-market consumption.

Millennial momentum

Driving this shift in consumption patterns is the country’s growing millennial population, which stands at around 400 million. This is more than the total working population of Europe.

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In China, this age group is more educated than previous generations. Over 90% of them have access to a smartphone. This has had a profound impact on the technology and e-commerce sectors and China is now the world’s number-one retail market. Here are some of the “New China” companies that we believe offer exposure to China’s transformation to a consumer-orientated economy.

Bilibili (Nasdaq: BILI) is a Chinese video-sharing platform centred upon animation, comics and games, similar to the app TikTok. It is a prime example of a company benefiting from the changing consumption patterns of a new generation.

Highlighting the exceptional levels of daily user activity on its platform, Bilibili reported total net revenues of $260m last year, approximately $83m more than the net sales of TikTok, which made around $177m worldwide the same year.

China’s Deliveroo will deliver

Another company tapping into this demographic’s growing demand for convenience is China’s multi-level technology service platform Meituan Dianping (Hong Kong: 3690) – the Chinese equivalent of Deliveroo. As the country’s leading website for local food-delivery services, consumer products and retail services, Meituan Dianping is enjoying accelerated growth in its user base.

The company, whose unique selling point is its ability to have fresh food delivered in 30 minutes within a three-kilometre radius, reported an increase from 382.3 million users in 2018 to 435.8 million last year.

Profiting from rising incomes

Ping An Insurance (Hong Kong: 2318), China’s biggest insurance group, is another of our long-term holdings and a further example of a company tapping into the country’s growing consumer culture. As expendable income grows and salaries rise, there is an increased demand for personal and business insurance. Ping An Insurance is a key beneficiary of this trend. Throw in growth in its banking division and the group’s long-term prospects remain auspicious.