A Deep Dive In China’s Sector Winners Despite Health Crisis

10-09-2018

Below is an excerpt of the keynote address by Dato’ Seri Cheah Cheng-Hye, Chairman and Co-Chief Investment Officer of Value Partners at Sir John Templeton Investment Roundtable 2018

China – the Positive Surprises Keep Coming

Like Sir John Templeton, who invested in the potential of surprises not yet priced into markets, I, too, am a contrarian investor. China, I believe, will present the world with surprise after surprise, the vast majority of them highly positive and these in turn will open up truly significant opportunities.

It will be one of the minority of developing countries that succeeds in breaking out of the middle-income bracket, that notorious swamp where so many developing countries remain stuck. Those that have broken out from it like Korea are a small minority. By contrast, many of the rest like Latin America, stay stuck at that stage without any chance of light at the end of the tunnel.

Today, China is an upper middle-income country. However, according to Morgan Stanley, by 2027 China will decisively cross the income threshold for a developed country: $12,476.00 per capita income – not bad going for a nation which in the post-war era was at starvation level. Of course, you have to set things in perspective. US annual per capita income is some $60,000. But it is still a major achievement and it presents a wealth of investment implications given China’s potential, with its size and growth, to become the leading developed country.

Current Chinese growth is stronger than was expected. It is expected to be 6% this year and 6.5% next year. A recent survey suggests that by 2027 China will be the biggest economy on the planet followed by the US, India, Japan, Indonesia, Russia and Germany. Every four years the Chinese economy is growing by an amount equal to the entire gross domestic product of the UK.

Just picture that – a new UK every four years! These are plain statistics, but the evidence really hits you when you’re there and notice the expensive BMWs and Porsches on the road. From a financial or investment point of view that is good. But success also brings its problems, some of them unanticipated.

You can click here to access the full keynote and the discussion following it.