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Asian takeaways: Char Siu chronicle
We’re proud to present the latest in our ‘Asian takeaways’ series, where we’ll share local insights on what’s happening across Asia-Pacific. From India to Indonesia, from Taiwan to Thailand, we give our views on the dynamic changes across the region, while showcasing our learnings from being ‘on the ground’ at company and site visits.
Our last few visits to China, since the start of the year, have exposed a story of two halves. Reflecting on our learnings from years of investing in the region, we re-iterate that when it comes to China’s equity market, things are never as good as they look, but also never as bad.
The first half of the story is the narrative that is widely reported of China’s economic slowdown, negative consumer and investor sentiment, and a crumbling property market. The second half, which very much lies in the shadow of the former, is of China’s continued relevance in a global context when it comes to contributing to global growth, and its ongoing importance in international supply chains.
When we visited the country recently, there was evidence of both, and in our full piece we discuss:
- The domestic landscape: on the back of a weak property market, culminating in a negative wealth effect and deleveraging across the sector, domestic consumption remains sluggish. However, even in this environment, we are seeing resilience in certain areas.
- Exports in an evolving global market: there are notable headwinds for China’s export market in the form of geopolitical tensions and the impact of the upcoming U.S. election, however it is interesting to note that the country’s export strength is becoming increasingly less reliant on the U.S. and other G7 countries.
- China’s “overcapacity”: whilst government policies have likely led to overcapacity in industries such as steel and solar, where state-led efforts play a greater role, for the auto industry, foreign mass brands and EV startups appear to have been the major drag on industry utilisation rates.
- “Trade war 2.0”: whilst the outcome of the election remains uncertain, the possibility of another trade war feels more likely regardless of the results. Higher tariffs, potentially in the realm of 50-60%, seem to be a bipartisan priority for both Harris and Trump, and a conflict in relation to U.S. trade policies appears inevitable and imminent.
China still has a long road to recovery, but we believe that changes in global dynamics will help the country to reconfigure its growth model. Whilst it was previously heavily dependent on the property market, the government may feel that the opportunity to become the “world’s factory” could reduce the emphasis on this sector, instead doubling down on its commitment to manufacturing and exports.
In addition, whilst domestic demand continues to lag, localisation and self-sufficiency will become more of a focus, and in light of this, we would expect China’s trade surplus to widen.
As bottom-up stock pickers, this environment creates select but compelling opportunities. Whilst we cannot predict what will happen over the coming months, we are focused on strengthening out our portfolio’s positioning against any outcome by investing in high quality businesses across structurally winning industries.
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