Technology, consumption, real estate: Which sectors are growing now in China

• Joseph Ayoola
  Analyst
  Redwheel

• Colin Liang
  Head of China Research
  Redwheel

Economic activity is stable overall and, after a pause, sentiment towards Chinese assets is noticeably improving again. This is evident, among other things, from the growing presence of international investors: The number of participants at this year’s JP Morgan conference quadrupled to 4,000. There were three times as many visitors from the USA alone as last year – and twice as many from Europe.

Technology: early-cycle strength

The technology sector is developing particularly dynamically, especially in the areas of e-mobility and autonomous driving. They have visited several robo-taxi companies: The profitability of these companies is increasing due to falling hardware costs. We are seeing a high level of investor interest in new technologies – from advanced driver assistance systems (ADAS) to solid-state batteries. However, commercialisation is still in its infancy here. He therefore expects the market to consolidate: The decisive factor will be to go with those companies that can utilise economies of scale and have a strong balance sheet.

Property: polarisation between premium and mass

There is light and shade in the property market: There are signs of a bottom forming here – with some opposing trends. We have experienced a sharp downturn in recent years. But in the high-price segment, we have been seeing rising prices for three to four years – in other words, a bull market. Demand is being supported by low interest rates and relatively attractive rental yields: Rental yields are around two percent, which corresponds to the 10-year domestic interest rate and makes property attractive compared to fixed-interest investments,. All in all, the property market is in a much better state than it was twelve months ago.

Consumption: recovery in the upper segment

The first impetus for consumption is coming from the wealthy sections of the population: We are seeing rising spending on luxury goods and high-priced leisure products, such as premium outdoor brands and sportswear. This can also be seen in gambling in Macau’s casinos, which are once again being frequented more by entrepreneurs and wealthy families. In the broader market, on the other hand, adjustment processes are underway – smaller providers are withdrawing and market leaders are gaining ground. We think that the market will reach equilibrium fairly soon.

Conclusion: Signs of economic recovery are increasing

All in all, we see signs of a recovery in the Chinese economy. Technology, luxury goods and the upmarket property segment in particular are showing clear signs of growth. At the same time, structural shifts – for example in demographics and consumer behaviour – require a differentiated view. For investors, there are specific opportunities in the innovative and consolidating submarkets.