Harnessing China’s growth engine

China’s transformation to a consumer-led economy is creating some of the most attractive investment opportunities globally. What does this mean for investors?

Jun 8, 2020

14 minutes

The fast view

  • Chinese equities offer some of the most attractive revenue, earnings and cashflow growth opportunities globally.
  • This is being fuelled by an economy that is rapidly shifting from investment-heavy export industries to more sustainable and shareholder-friendly, consumer-oriented areas, a trend accelerated by COVID-19.
  • ‘Old’ economy sectors are reforming, while China’s transformation to a consumer-led economy is geared toward a growing middle-class population.
  • Investment opportunities are widespread, in particular consumer, healthcare and technologically-innovative companies, across both China’s urban and rural areas.
  • A strategic, active approach that takes a wide lens to China’s equity market is well positioned to harness China’s growth engine.
  • We believe that China is relatively better placed to weather the acute growth shock to the world economy from COVID-19 as it has ample policy levers (both fiscal and monetary).

China transitioning to a new normal

After decades of supercharged economic growth, the consensus view is that China’s growth engines are exhausted, and output will slow for the foreseeable future. We believe that this view is incorrect, and that China is transitioning to a new normal. China’s long-term growth prospects will be driven by the rebalancing of its economy away from exports to consumption, the rising wealth and sophistication of Chinese consumers and the transformation of its vast rural economy. For investors, this is an opportunity to get involved in the take off of Chinese consumption growth.

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Specific risks. Geographic/Sector: Investments may be primarily concentrated in specific countries, geographical regions and/or industry sectors. This may mean that the resulting value may decrease whilst portfolios more broadly invested might grow. Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Derivatives: The use of derivatives is not intended to increase the overall level of risk. However, the use of derivatives may still lead to large changes in value and includes the potential for large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company. Concentrated portfolio: The portfolio invests in a relatively small number of individual holdings. This may mean wider fluctuations in value than more broadly invested portfolios. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

Authored by

Greg Kuhnert

Co-Head of 4Factor

Wenchang Ma

Portfolio Manager

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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