Paris-based fund manager launches new fund to invest in the structural trends of the new China. The fund takes a sustainability approach to stock selection.
Carmignac is best known in Belgium for its flexible funds such as Carmignac Patrimoine. However, the Parisian manager has been investing heavily in the Chinese market for many years, under the leadership of Haiyan Li-Labbé. Having succeeded the broad China region as an analyst, she has become the main manager of the Carmignac Portfolio China New Economy fund, which was launched at the end of March 2021.
Health crisis
“During the year of the health crisis, the Chinese government managed to control the pandemic well on its territory. It therefore did not have to massively underpin the economy.”
However, since February, Chinese equities have been under pressure due to several factors, such as rising US bond yields, sector rotation away from themes benefiting from the corona crisis, tighter regulation of the technology sector and the resurgence of tensions between China and other developed countries.
Despite this uncertainty, the Chinese economy remains in good shape. The Chinese central bank’s policy is different from that of the United States. It wants to keep its currency strong to dampen the impact of rising commodity prices. “At the same time, several regions were hit hard by the epidemic and the lockdown measures, so Chinese exports were not really affected by the strong renminbi. Such opportunities (strong exports and strong currency) are historically rare.”
Reforms
Haiyan Li-Labbé also stresses that the vaccination programme in China is in full swing. By the end of this year, 75% of the population should be vaccinated. That is a feat for a country with a population of 1.4 billion.
So she expects economic growth to remain strong in the coming years thanks to government reforms that focus on digitalisation, reducing pollution, and consolidating the country’s technological independence. “By 2035, China’s GDP is expected to double again, and eventually China will surpass the United States as the world’s largest economic power.”
“The government is currently taking on much of the health and pension burden, which has freed up a lot of money to buy goods. The number of people getting pension insurance has also risen sharply. For example, almost 70 per cent of all urban workers now have such insurance.”
The biggest challenge today is the ageing of the population in the coming years. “By 2050, there will be two active workers for one retiree in China, so the country will automatically start automating certain activities more and more.”
Another sign of the modernisation of the Chinese economy is that more and more big Chinese brands are present outside their home country. “An important sign is that at the Euro 2020 there are four Chinese sponsors (Hisense, Vivo, Alipay and TikTok), accounting for about half of the main sponsors of this competition.”
Sustainable focus
Haiyan Li-Labbé invests in all these themes in her fund. “We want to invest in companies that are leaders in high-growth sustainable segments. So we have identified four key themes to which our portfolio will be largely exposed: technological innovation, the green revolution, domestic consumption and healthcare/medical innovation. These themes will continue to offer attractive investment opportunities for the next 15 years.”
The composition of the portfolio is very different from that of the MSCI China index. Most of the names do not ring a bell with Western investors, such as Joinn Laboratories, Chindata, Miniso, Vipshop and Haier Smart Home.
A distinctive feature of the selection process is to choose companies with best practices in terms of sustainability in the investment universe. “When we can choose between different companies, we are going to choose the ones that use the most renewable energy, such as companies that operate data centres.” Today, the fund is classified as Article 8 under SFDR.
It also wants to achieve the sustainability labels of France and other European countries. “We also have the ambition to reduce the fund’s carbon footprint by 5 per cent per year.”