Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
The Covid-19 pandemic and the subsequent lockdowns in China hit consumer spending but the long-term outlook still looks favourable. China’s consumer market is among the world’s biggest, thanks to the high population of the country.
China retail sales were down 0.2% in 2022 due to Covid-19 but the China consumer is expected to drive economic growth in the coming years. The government wants to make consumption the “main driving force” of the economy.
“The greatest potential of the Chinese economy lies in the consumption by the 1.4 billion people,” China’s premier Li Keqiang said during a cabinet meeting earlier this year. “Boosting consumption is a key step to expand domestic demand. We need to restore the structural role of consumption in the economy.”
In 2022, China recorded economic growth of 3%, one of the worst on record as Covid curbs hit hard. The country reopened late last year and investors are now eyeing the recovery story, with consumption being the mainstay.
China’s consumer story
As per the National Bureau of Statistics of China, household consumption accounted for less than 40% of China’s GDP. The country has been trying to transition to a consumer-led economy, but that is a long way to go as developed economies have consumption as a 70%-80% share of the GDP.
“There’s no mystery as to why the Chinese consumption share of GDP is so low. Chinese households retain a very low share—in the form of salaries and wages, other income, and transfers—of what they produce, so they are unable to consume more than a low share of what they produce,” writes Carnegie Endowment for International Peace.
“Economic recovery in China hinges on reviving consumer demand. Exports and investment were the principal driving forces of demand in 2022, but they are unlikely to continue on the same trajectory,” as per Yan Liang, an economics professor at US-based Willamette University. “Productivity and income growth, distribution and redistribution are essential to boosting consumption in the medium- to long-term.”
The common prosperity policy by Beijing is one such measure to redistribute wealth to the poor and middle class, but it remains to be seen how successful it is.
Meanwhile, a report by UK-based data firm ECA International said that China is expected to see salary growth of 3.8% in 2023, the third highest in the world behind India and Vietnam.
There is also a trend of buying premium products among the Chinese along with increased incomes. “Despite weak consumption, the premiumization trend remains the mainstream in China as affluent consumers are generally under less financial pressure than the lower class. Across different categories, the premium segment has been growing faster than the value segment,” Mirae Asset said in September 2022 in its China Consumption review and Outlook report.
The stage seems set for consumer growth, and there are various China consumer mutual funds for investors to bet on the country’s consumption story.
Value Partners China A Shares Consumption Fund
Value Partners established the China Consumption Fund in November 2020 and invests in equity assets of companies doing business in China and Hong Kong. The fund charges an initial subscription fee of 5%, a redemption feed of up to 3% and an annual management fee of 1.5%. The fund has assets under management of $6.04 m, as of April 14, 2023.
The fund is benchmarked against the CSI 300 TR CNY index, which tracks the performance of 300 stocks (A-shares) traded on both the Shanghai and Shenzhen Stock Exchanges. In 2022, the fund saw a decline of 22%, whereas the benchmark index saw a 26.5% decline.
The fund is invested nearly 100% in China. Nearly 90% of the fund’s investments are in equities.
Sector-wise, the fund is largely invested in consumer defensive stocks (71.56%), followed by consumer cyclicals (16.09%), industrials (5.28%), technology (2.97%), financial services (2.81%), and healthcare (0.72%).
As of April 17, the five largest holdings of the fund are Kweichow Moutai Co (9.73%), Wuliangye Yibin CO (9.54%), Luzhou Laojiao Co (8.90%), Anhui Gujing Distillery Co (6.34%) and Shanxi Xinghuacun Fen Wine Factory (5.35%).
The fund is managed by investment director and portfolio manager Lilian Cao who has over 20 years of experience in research and investment in China.
Fidelity Funds – China Consumer Fund
Launched in 2011, Fidelity’s China Consumer Fund has total assets under management of $4.6 bn, as of March 31, 2023. Pegged against the MSCI China Index, the fund has a growth and quality-oriented strategy. It invests at least 70% of its assets in equities of companies based in China or Hong Kong or doing most of the business in the two regions.
Since its launch, the fund has returned investors a total of 65.5%, while the benchmark index has risen 38.8%. The fund invests majorly in consumer discretionary (37.2%), followed by communication services (17.2%), consumer staples (16.2%), financials (12.4%) and Industrials (6.0%), among others.
The top five holdings of the fund are Tencent Holdings (10.4%), Alibaba Group (10.3%), Kweichow Moutai Co (5.9%), AIA Group (5.0%) and Ping An Insurance Group (4.6%). Over 82% of the fund’s investments are in China, whereas Hong Kong has an allocation of a little over 11%.
The fund has a maximum initial charge of 5.25%, and ongoing charges of 1.90%.
The fund is managed by Hyomi Jie, who has been working with Fidelity International since 2010 and took over the fund’s management in 2017.
Mirae Asset ESG Asia Great Consumer Fund
Launched in 2011, the Asia Great Consumer Fund intends to invest in equities of Asian firms that benefit from growing consumption. Although this is not a China-specific fund, the high allocation to China is why we have considered it in our comparison. The fund has assets under management of $855.69m (as of April 14, 2023). There is a minimum initial investment of $2,500 and the fund charges an annual management fee of 1.5%.
The fund is benchmarked against the MSCI Asia ex-Japan Index. Region-wise, the fund has the highest investment in China (57.9%), followed by India (16.8%), Thailand (9.2%), Korea (6.0%), and the Philippines (3.4%).
Since inception, the fund has fallen 3.14% compared to the gain of 4.46% of the benchmark index. Over the past six months, the fund has given 10.03% returns compared to the 20.59% rise in the benchmark index.
Sector-wise, it has the highest exposure to consumer discretionary (42.2%), financial (13.7%), consumer staples (13.1%), communication services (10.4%) and Industrials (6.7%).
The top five holdings of the fund are Alibaba Group (8.4%), BYD (7.9), Tencent (7.0), Meituan Class B (6.6%) and China Tourism Group Duty Free Corporation Ltd (5.8%).
The fund is managed by Joohee An, Co-Chief Investment Officer at Mirae Asset Global Investments. She has been working with the firm since 2006 and has an industry experience of 19 years. Co-portfolio manager is senior investment analyst Sol Ahn, who has 17 years of industry experience.
To capture the growing consumption activities of China and India, Mirae Asset in January 2023 launched another consumption fund, the Chindia Great Consumer Fund, with a focus on investing in equities of Chinese and Indian companies.
Editor’s Note: All fund details for Share Class A.
