For two fund managers at Fidelity International, Beijing’s recent announcements on economic stimulus were promising enough to prompt additional investments in real estate stocks that had been struggling. Since late September, Chinese authorities have unveiled several measures including interest rate cuts and financial assistance aimed at completing construction on pre-sold apartments. Theresa Zhou, a fund manager at Fidelity, highlighted in a Wednesday interview with CNBC that this round of coordinated measures from various government levels is particularly notable. “We’ve been cautiously increasing our investments in China,” Zhou noted. Following the policy announcements in September, the firm grew more optimistic about select cyclical sectors in China’s real estate market, shifting from a previous emphasis on online platforms. Zhou pointed out that a return of consumer confidence could potentially stabilize real estate prices, especially in major Chinese cities.
As 2023 wrapped up, Zhou expressed concerns about the housing market’s downtrend due to high inventory levels and falling home prices. Zhou and Ben Li co-manage Fidelity’s Greater China Fund, but the firm keeps specific stock transaction details under wraps. Li remarked, “We are selectively bolstering our stakes in high-quality consumer and property firms,” acknowledging past challenges faced by these sectors due to macroeconomic hurdles. He expressed optimism, suggesting that with policy changes, improvements may soon follow.
Li believes that experience-based consumption will thrive, noting their investment in platforms like online travel agencies. Notably, Trip.com, a major Chinese online booking service, is among the top holdings in Fidelity’s Greater China Fund. In a recent assessment by McKinsey senior partner Daniel Zipser, Chinese consumer sentiment showed signs of recovery, with property transactions experiencing a 2% rise in October and the first half of November—the first such increase this year.
While China has refrained from direct cash handouts to the public, authorities have targeted subsidies for trade-ins, encouraging purchases of large household items like home appliances. Big players, including Alibaba, have reported sales boosts. According to a November 20 note from Nomura analysts, these measures have propelled panel TV sales upward in China since the third quarter, now anticipating a rise in TV production utilization at companies like BOE and TCL Technology during November. Both firms, rated as ‘buy’ by Nomura, are listed in Shenzhen.
The Fidelity fund managers stressed their strategy of selecting companies based on unique competitive advantages, acknowledging that it will take time to feel the full impact of the stimulus. They are keenly observing upcoming government meetings in December and March for further policy insight. Typically, China’s top leaders convene in mid-December to formulate economic strategies for the coming year, with formal announcements expected during a parliamentary session in March.
Zhou remarked that the positive shift from the stimulus package mitigates market risks and sets a foundation. She remains “cautiously optimistic,” acknowledging the patient wait needed to see results. Recent earnings reports from Chinese firms reinforce the notion that the stimulus’s impact will unfold gradually. Reflecting on recent interactions with companies after earnings calls, Zhou sensed a positive shift in company outlooks and expectations for the coming year.
From a geopolitical standpoint, Zhou observed that Chinese companies have diversified their supply chains internationally, rendering them more resilient now compared to several years ago amidst previous tariff threats from figures like President-elect Donald Trump.
