David Walter, a director at PAAMCO, also points to healthcare as another sector to put on the list due to the changing demographics and size of the pharmaceutical industry.
China is the second largest pharmaceutical market in the world after the US, and studies estimate that its value will reach $315bn in 2020 due to the needs of the ageing population. The number of people in China aged 65 or over is estimated to rise to more than 329 million in 2050 – more than the entire population of Germany, France, Japan and Britain combined.
Health services such as hospitals and insurance as well as biotech and medical devices are booming markets but foreign investors are advised to do their homework, understand local conditions and place their bets carefully.
There are also a few words of caution from Jaisal Pastakia, investment manager at Heartwood Investment Management, over 2018’s prospects. He notes that while economic growth came in better than forecasted and data has been on an expected gently slowing trend since, investors have perhaps been “lulled into a false sense of security”, given the strong performance of the equity and currency markets. However, he adds: “We believe that as the Chinese authorities continue to deleverage specific areas of the economy, these actions may have the capacity to create pressure points in 2018, leading to potentially more volatility in economic data and, crucially, in markets – albeit from very low levels.”
Crowl also warns that investors should tread carefully given that valuations are full with the Hang Seng index, the Chinese Hshare index and the local A-share index up 30%, 20% and 6%, respectively year-todate. She notes that local institutions and Hong Kong investors have highly concentrated portfolios which can cause volatility in a market correction. In addition, the government has recently warned against excesses in speculation and could implement tighter monetary controls in an environment where the interest rate curve has steepened.
“While we would not recommend any type of market timing, investing in long-term growth and new economy stocks in the consumer, manufacturing and technology sectors is a defensive approach to the Chinese stock markets,” she adds.