After Mediolanum International Funds launched its Chinese-focused fund in 2021, Steven Luk, CEO of Hong Kong’s FountainCap Research & Investment discusses the country’s outlook and reflects on the sort of asset allocation that makes sense for investment in China.

Despite concerns over China’s slowing economy, and its real estate sector in particular, Steven Luk, CEO of Hong Kong’s FountainCap Research & Investment, believes that the worst is over.

There are early signs that the economy is improving, Luk told this news service recently in an exclusive interview.

Latest figures from the International Monetary Fund show that China’s real GDP is expected to grow by 5.4 per cent in 2023. The third quarter of 2023 saw a sharp increase in retail sales, particularly for restaurants, alcohol, and cars, offsetting a drag from the property market. The country has made a strong recovery post-Covid, but its growth is expected to slow to 4.6 per cent in 2024, amid continuing weakness in the property market and a subdued external market. Nevertheless, Luk believes that now is a good time to invest in Chinese equities.

China has also introduced a number of measures to support the property sector, but some commentators believe that more is needed to secure a faster recovery and lower economic costs to bring it down to a more sustainable size. See more commentary on the country here.

Although Luk believes that it is still too early to feel the impact of the measures, he thinks there are signs of improvements, with some good investment opportunities for long-term investors.

He is not alone in his views. Marcus Weyerer, senior ETF investment strategist, Franklin Templeton ETFs EMEA, said in a note this week that he has “a constructive view of China’s long-term opportunities – a country in a multi-year transition that at times will be painful, but [will] potentially lead to more sustainable, albeit lower, growth going forward.” Nevertheless, Weyerer recognises that "many investors currently are more concerned about the numerous challenges and may consider tactically underweighting China – especially given its dominating weight in standard Asia and EM indexes."

David Bailin, chief investment officer and global head of investments, at Citi Global Wealth also does not rule out a recovery in China. “Should policymakers provide substantial assistance to the real estate sector, implement incentives to boost domestic consumption and encourage more investment in productive assets, China has the wherewithal to return to a higher rate of growth. In addition, more consistent policies regarding the governance of their technology and other 'socially impactful' companies are necessary to restore investor confidence,” he said. See more here. 

China fund
The China Fund focuses on investing in Chinese equities. Luk believes that robotics, automation, healthcare and renewables will shape China’s future. With the country producing more than 70 per cent of all solar photovoltaic panels, half of the world’s leading electric vehicles and a third of its wind power, he has direct exposure to renewables, notably solar. Luk also likes consumer goods, such as sportswear, noting that the food and drinks sector continues to grow.

The fund aims to achieve long-term results for investors by investing in companies that will benefit from China’s transformation and long-term growth. It is a long-only equity fund, using a bottom-up stock-picking approach, backed by thorough research.

Top holdings include: Chinese sportswear firm Anta Sports, which specialises in basketball and running shoes; Sungrow Power Supply; a specialist in the manufacture and sale of solar photovoltaic (PV) inverters; and Chinese oil and gas firm, Petrochina. Other holdings are Jiangsu Hengli Hydraulic, which manufactures and sells hydraulic components and systems, and Yum China Holdings, a Chinese fast food restaurant company. The firm is underweight in Chinese tech giant Tencent. The fund is authorised for sale in Austria, France, Germany, Luxembourg, Norway, Spain, Sweden, Switzerland, and the UK.

MIFL is a management company approved by the Central Bank of Ireland to manage UCITS or undertakings for the collective investment in transferable securities, which are investment funds regulated at EU level, and non-UCITS funds.