Fidelity International Remains Optimistic About Long-Term Opportunities in China Despite Near-Term Volatility

  The atmosphere on Wall Street is less than stellar during Halloween. As most companies in the United States announced their third-quarter results, we saw rapid growth in corporate performance, but on earnings calls, many company executives were cautious about the future.
  For example, Elon Musk said that rising interest rates have suppressed demand for car purchases; toy manufacturer Mattel (the maker of Barbie dolls) is not optimistic about sales this Christmas; Snapchat also said that due to tensions in the Middle East, advertiser spending Down…
  Why the huge contrast between data and sentiment? Taking PepsiCo and Coca-Cola as examples, their growth since 2023 has come from price increases rather than increased sales of non-carbonated drinks and food. That’s a source of anxiety for some companies, with executives and investors wondering whether falling sales and rising prices are sustainable.
  Statistics from financial data provider Factset found that since the beginning of this year, about half of the companies in the S&P 500 Index have recorded profits, and 78% of them have exceeded profit expectations, while the S&P 500 Index has risen by less than 9% as of October 31.
  In the extreme case, when the increase in product prices cannot offset the decline in sales, companies can only maintain growth through layoffs. As a result, the purchasing power of American consumers will become increasingly reduced. At present, it is particularly important to keep a close eye on corporate performance and management actions. Some high-quality companies that act flexibly and quickly will have the opportunity to buck the trend and rise.

From an investment perspective, the global market has been full of challenges in the past 12 months. But in terms of growth, Asia contributes more than 70% of global economic growth, of which China contributes 1/3 of global economic growth.
  On October 31, Marty Dropkin, Fidelity International’s head of stock investment in the Asia-Pacific region, elaborated on his views on China and the Asian stock market. He expressed that he was very optimistic about the Chinese market. And from a long-term investment perspective, given the current valuation level, the attitude towards China’s capital market is becoming increasingly optimistic, especially some individual stock targets and industry opportunities.
Many Fidelity funds have given the Chinese market an “overweight” rating, and some funds’ holdings of Chinese assets are close to the upper limit.

  Marty Dropkin said Fidelity International has many different funds that invest in specific markets, which means there are different approaches to asset allocation in the same country, “but there is no doubt that China (the market) is becoming more and more Cheap.” From a three-year perspective, China’s market has returned to the level it was many years ago.
  There was a period of rebound in Chinese stocks in the fourth quarter of 2022 that lasted into the beginning of this year. In the short term, Fidelity believes that the Chinese market may be volatile again and rebounding remains challenging. But very optimistic at current valuations and opportunities. Most of Fidelity’s funds have an “overweight” rating on the Chinese market, and in fact, some of the funds’ holdings in Chinese assets are close to their upper limits. “If we look at the current Chinese stock market from the perspective of individual stock selection, we will find some very good opportunities.”
  At the same time, he mentioned that although investment opportunities in the Chinese market do exist. However, when considering stocks and thinking about themes and trends, you need to consider a 3- to 5-year cycle rather than a quarter, because it is difficult to know when there will be any changes, but long-term trends exist, and long-term themes also exist. Does exist.
  ”In short, we do think there will be some volatility in the Chinese stock market, but is it a good buying point now? I think the answer is yes,” said Marty Dropkin. Clearly, the real estate industry is facing some challenges now and it will continue to face challenges. But the government will ensure that the industry weathers the storm. He said he was conducting in-depth research on some stocks in this area. The reason for this is that the current market is at a critical moment and China’s valuation is attractive. “The way we invest is to look for good opportunities in companies that will drive the performance of the portfolio and look for earnings growth.” He
  said he is looking forward to a recovery in real estate prices, but agreed, “We are not looking at By the time you get to the days of a few years ago when both supply and demand were rising dramatically, things will slow down. That means you need to look at industries with more room.”
In line with the policy direction, focus on AI, biomedicine, semiconductor and other sectors

  Marty Dropkin said that currently they will pay more attention to stocks that are consistent with government policy directions, including targets in AI, healthcare and industrial fields.
  He said that when seeking investment opportunities in China, one must pay attention to the government’s policy direction. Where the Chinese government’s investment priorities are, investment opportunities should be there. Biomedicine is probably one of the directions.
  He said biotechnology is an interesting field because it connects to the broader health care sector, but of course the field faces some challenges. Certain areas of healthcare are already experiencing some regulatory impacts. But there’s more confidence when you consider the stock’s upside. Because of the policy impact, biopharmaceutical stocks have fallen.
  ”When stocks go down, that creates opportunities.” So, “I think biomedicine is an area that investors should pay attention to and keep their eyes open. It’s a pretty complex area. Investors have to really understand a specific area.” The company’s drugs.” At the same time, he said that opportunities in the biopharmaceutical industry are always accompanied by innovation and investment in this field, as well as related technological improvements, which will always provide industry opportunities and specific targets.
  He said that biomedicine will be a very strong opportunity in the future, but at the same time, there are also some very good opportunities in China in artificial intelligence, semiconductors and other fields.
  Fidelity’s current focus in the technology sector is semiconductors. “For the entire semiconductor industry, it is currently at the bottom of a cycle, and inventory levels have peaked. This is a global perspective.” He gave an example, such as smartphones, which will achieve long-term growth and some good opportunities.
  At the same time, semiconductors have also played a role in promoting the performance of the Japanese stock market this year. He said that the Japanese and US markets continue to rise and have become the strongest markets in the past 10 years. Of course, this includes some factors, including corporate governance, dividends and buybacks, etc. In the early stages, these factors drove a sharp rise in the stock market, a trend that will continue for some time. However, what needs attention is that the Japanese government is promoting domestic investment in the semiconductor field, with the goal of doubling it in 10 years. This will bring opportunities to Japan, which has a very strong infrastructure in the semiconductor industry.
  From a global demand perspective, this will also drive demand in China. Chinese companies and Chinese consumers are increasing their consumption and spending. “We are also beginning to see a mobile phone cycle is accelerating, and a real mobile phone upgrade cycle will start from China begins.”

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