19th January 2016
China’s economic growth has dropped to the slowest level in 25 years at 6.9% in 2015, compared with 7.3% a year earlier.
The slowdown has spooked investors across the globe, as China is the world’s second largest economy and some commentators suggest the picture is worse than official data implies.
If growth dips below 6.8% there are likely to be calls for an economic stimulus.
China is undertaking a huge structural shift from a production powered economy to one driven by consumption.
Fidelity argues that with GDP growth down and a volatile start to 2016, consumers continue to lead the change in China, reinforced by growing disposable income and a supportive reform agenda.
Raymond Ma, portfolio manager of Fidelity China Consumer fund, says: “Although market volatility and the weakness of the RMB might have somehow impacted the sales growth in luxurious goods areas (e.g. gold and jewellery), the overall consumption in China has held up pretty well. In particular, automobile sales have increased and airline passenger growth has remained solid.
“Meanwhile, under-penetrated consumer service areas such as healthcare, tourism and media remain relatively resilient and continue to register double-digit growth. Under the current market environment, I continue to prefer companies that have strong cash generation capability. I also like companies with strong balance sheets and net cash positions as these enhance the defensiveness of the portfolio.“
Matthew Sutherland, head of product management, Asia, at Fidelity International, adds: “The stock market volatility has had close to zero effect on the Chinese consumer’s appetite to consume, as the investing part of the population is very small and the amounts at risk are very manageable. The transition towards a more consumption-driven economy, driven by the reform programme, is intact and under way.“