Are Chinese consumer stocks the next growth journey?
The recent clampdown on Chinese technology companies and created a repricing of these companies causing the regulatory risk premium to increase. Many of the big Chinese technology companies are now trading at attractive valuations compared to their American counterparts, but the main question is whether the discount could grow. The sometimes confusing language from Chinese regulators has increased the uncertainty on how this future regulation will impact long-term earnings growth of Chinese companies.
Our view is that the uncertainty over big Chinese technology companies and technology platforms within social media, advertising, gaming and fintech could continue to linger for years as these issues are complex to sort out for the Chinese government. As a result, we believe the Chinese consumer companies within the consumer discretionary and staples sectors could take over as the next growth engine and darlings of investors. Consumer oriented companies are less about personal data and control, which is a potentially threat the policy objective of the Chinese government, and more about classic products, distribution and brands riding the wave of the rising middle class in China. Tomorrow, we will be launching our next equity theme basket called Chinese consumer and technology, which will focus on stocks within the private sector that provides the most interesting exposure to China’s long-term future.
(*) The parent company of Prosus is South Africa Nasper which is an investment company that successfully invested $32mn in Tencent back in 2001 for a 31% stake. In 2019, Nasper spun out its international holdings of internet stocks in a separate company called Prosus listed on the Amsterdam Stock Exchange and Johannesburg Stock Exchange.