An opportunity that you could throw a dart at and still do well

Why have Chinese equities rebounded (and can they continue to surprise in 2024)? 

Markets have been sold down excessively last year, and that's why you have seen this bounce back. There's no data improvement as such. It's just that things have started to be less bad and they have been sold to such cheap valuations that it makes all the sense to buy Chinese equities at this point. Less bad news, it's better capital management and I think that can continue this year without data being even good in the short term. Then I think in the medium term, in the next 12 to 24 months, the data can cyclically improve as well, and that can add further upside to Chinese equities.

Which risks should investors be aware of when investing in this region?

I think from a medium to long-term perspective, I think demographics are a higher risk than it was. We all knew that China going to age and slow down, but what we saw in the last two years is that the birth rate collapse in China was higher than expected. China's birth rate went from 1% to 0.5% in six to seven years. It was supposed to be 0.8%. 

Demographics are easily predictable. So everybody has some expectation of how demographics would be, but I think China's demographics have worsened more than what they should have in normal models.  

This is such a short time, two years in a very long duration of demographics. So it might be cyclical as well. I think from a medium to long-term perspective as a risk for a bottom-up stock selection, I put a higher rate on demographics. For top-down risk, I put a higher rate on geopolitics - but I think geopolitics is something that is increasingly getting priced in as well.

There will still be categories where consumers will spend more. On healthcare services, as you age more, you spend more on that. Education - you need to up-skill yourself as you go along. You spend more on sportswear because you want a healthy lifestyle as you age. There will be categories where even worsening demographics will improve them. So you can easily modify your portfolio. I think at this point, we are still not sure whether these demographic changes that we saw in the last two years are more cyclical or structured.

What would you say to investors who remain reluctant about investing in China?

So I think it would be very risky for investors to ignore those opportunities. I think some of the opportunities that I see in China are the best I have ever seen in the last 10 years. So this is the time to be more greedy, but with the sense that you have some of these long-term concerns. So you have to manage how you have your exposure to China.

Can you take us through a few examples of these opportunities? 

So I think these are sectors where you have consolidated industry structures. The bigger companies are getting bigger, they're taking share. The underlying economies are either going through pricing through premiumisation while volume growth is low, but they're becoming more branded. They're taking share. Consumers are spending more in these categories. So I think some of these names and categories are trading at such reasonable throwaway prices as well, that it doesn't take a lot in terms of growth or improvement for you to make money in these companies.

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The Fidelity Global Emerging Markets Fund (Managed Fund) is an Active ETF designed for investors seeking a diversified selection of quality emerging market companies. Amit and the team select companies that we believe are well positioned to generate returns through market cycles.

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