A portfolio manager discusses the investment opportunities he’s finding in China now that the nation’s infrastructure-building economy has transitioned into one that is more consumer-oriented.
Matt Miller: Gerald, let’s talk about — shifting gears again — China. A huge factor in the global economy, going through enormous political and economic changes, a whole new set of initiatives under their new leader. As an investor, how do you think about China, both kind of macro and micro. What’s the right way to think about it?
Gerald Du Manoir: We certainly look at China as a land where there are plenty of opportunities. So if you think of that transition that’s going on from an infrastructure economy to a service economy, one of the areas is pharmaceutical consumption. Another area would be just sheer consumer product distribution. Some of the investments we’ve looked at can be either generic companies that are selling into the newly formed health care system in China or some of the semi-branded, good products that are being very welcomed under Chinese quality requirements. Baby powder, for example, is an area. There was an enormous demand for it, and then there were a couple of poisoning scandals. But that’s a long-term trend where the Chinese are saying, “Now that I am allowed to have more than one child, I definitely want high-quality, reliable baby powder for my child.” So that’s a great way to invest in those companies.
When you have an aging population that is gradually seeing its wealth appreciate or its income appreciate with a very high savings ratio, one industry that is growing very fast is the life insurance business. Some of it is run locally by Chinese-based insurance companies. Some of them are actually non-Chinese companies that have grown locally because of a knowhow that they’re bringing to the area. So that’s the other amazing thing about how we think of investing globally at Capital: Although we’re very passionate about what’s going on in China, we may find companies that are not in China but benefit from those trends. So AIA or Prudential would be good examples of companies that are offshore, if you will, but have huge benefits of what’s going on within China.
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