Three overlooked opportunities from China's reopening

So we own one of the largest sportswear brand in China called Li Ning (HKG: 2331). And I believe that it's a very strong reopening play. The stock has come up very nicely, but it has gone down in recent times. So it presents as a good opportunity and then a very stable sector like dairy. 

It's a very large market in China, consumer is premiumising and that premiumisation will continue even after reopening. So if you think about very specific opportunities, we like areas like sportswear, we like areas like dairy, and we like areas like advertisements. Especially outdoor advertisements, which was very weak during COVID times.

LW: How does inflation and high interest rates impact emerging markets?

Goel: Emerging markets have always lived in a relatively higher inflationary environment and a higher interest rate environment. And actually, if you compare what's history of emerging markets, this time they're relatively better off. But emerging markets is not a homogenous asset class, so there is no emerging market inflation of interest rates. It's very different in different parts of emerging markets. 

So in North Asia, inflation is low single digit to mid single digit and interest rates are about three to 5%. You go to South Asia and places like India and Indonesia, where inflation is about 5, 6, 7% and rates have been increased to 6-7%. 

In Latin America, inflation has gone to double digits, but rates have already gone to double digits. So actually this time, emerging markets have been ahead of the curve versus developed market. And that's what we see in stability of emerging markets where there are positive real rates in most part of emerging markets.

LW: What is your process for finding stocks in emerging markets?

Goel: We go deeper into each emerging markets and find out opportunities that we believe are right on the penetration curve. So if you think about China, we are very much in favour of consumption's improvement, the premiumisation of the consumer, and the Chinese government's focus in changing the economy from fixed asset investment towards consumptions. And here we try to understand the consumer grounds up - what are their choices, what are their aspirations, what kind of brands, products, services they're looking to buy in future. 

That's where sectors like sportswear, sectors like dairy, where premiumisation is going to happen over the next five, 10 years are the most interesting opportunities that we believe sits in that place.

You come to India where you have a huge middle class, which is growing. GDP per capita is still $2,500 per annum. And we believe that this middle class is going to now use products sensor, which are more discretion in nature. They're going to buy cars, they're going to buy houses, they're going to buy consumer electronics, and they're going to leverage up. 

We are very much interested in some of the private sector banks in the country, which benefit from consumer leverage. And we like sectors like consumer electronics, we like sectors like autos. And that's where I think our grounds of knowledge, the presence of our teams in these markets is very essential to our kind of research, to our opportunity and idea generation in emerging markets.

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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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