Vanessa Chan

Following a period of economic slowdown, China is engineering a ‘controlled stabilisation’ of its economy where stabilisation of growth is prioritised, rather than acceleration, in the short term.

Recent green shoots of improved sentiment have been supported by upbeat domestic consumption during the Lunar New Year and more recently the three-day break in early April, positive corporate earnings, and the 5.3 per cent Q1 GDP which has beaten consensus expectations and is within the target range set by policymakers.

Fidelity International believes there are opportunities in the next phase of growth as the long-term investment case for China remains intact.

Catherine Yeung, investment director, equities, at Fidelity International, comments: “One of the key features from the recent earnings period was the focus companies had on improving shareholder returns – this was primarily seen with a rise in dividend pay-outs and buybacks in response to SOE reforms and requests from shareholders.

“This improving corporate governance trend was particularly prominent in the financial sector where SOE companies increased dividend ratios or stabilised demand while smaller financial companies engaged in buybacks or boosted dividends given stock price pressure or due to meeting shareholders’ requests.

“Additionally, internet companies lifted their dividend pay-outs or buyback ratios; when looking at the total shareholder return yield (including both dividend and buyback yields), internet companies are beginning to stylistically shift from ‘growth to value’, which in turn, could see in the sector attracting a more diverse range of investors in the future given this focus on total returns.

“We have been closely monitoring Chinese companies’ dividend pay-outs, buybacks and restricted share units (RSU) for many years, and believe that across the board – be it SOEs to POEs, large to small cap companies, utilities to consumer names – several management teams are focusing on rewarding minority shareholders. Investors therefore could benefit from this trend in a similar sense to the corporate governance reforms witnessed in the Japanese market and investors’ optimism with Korea’s Corporate Value-Up programme. 

“In the meantime, focusing on bottom-up research to identify quality companies, managed by good company management teams and buying these stocks at attractive valuations which offer a margin of safety, remains key to constructing a resilient portfolio that compounds growth over the long-term,” Ms Yeung says.

Vanessa Chan, head of Asian fixed income investment directing at Fidelity International, comments: “We believe service-led consumption will dominate in the recovery in China.

“Within the consumption theme, services and tourism have showed a supportive trend. Recent data have shown that Chinese tourists spent more per trip over a holiday than pre pandemic level. The year-to-date railway travel have doubled, and air travel have almost tripled compared to 2023.

“Sectors such as Macau gaming, tourism and Internet platforms related to services are well-positioned to benefit. The government has continued measures to encourage durable goods upgrade through subsidies or targeted credit support, such as lowering down payment requirement for car purchases. We believe this will unlock more industrial production and manufacturing opportunities.

“From a policy perspective, the aim of the monetary policy is reinforced in earlier NPC meetings, to be prudent, flexible, targeted and effective, which reinforces the easing supportive stance of PBoC. Together with M2 and total social financing growth are aimed at consistent with expected economic growth and price levels, this may offer opportunity for credit growth.

“Rate cuts in China are unlikely to be aggressive, we believe monetary easing will probably play a supporting role to fiscal measures this year, with the expectation of shifting more expenditure to the central government.

“More effort will be exerted to defuse risks, as such, more local government refinancing bonds may be issued, LGFVs or off-balance sheet financing by local governments will be reviewed carefully. These supportive policies will provide a constructive backdrop for Chinese credits. Higher quality credits offer resilience to investors’ portfolio especially during macro-outlook uncertainties,” Ms Chan says.

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