The coronavirus could have wider ramifications beyond creating a global health panic, as it may drive rapid growth in online consumption in China, commentators have said.
Dale Nicholls, portfolio manager at Fidelity International, which has £329.7bn (€389.21bn) of clients assets, said that while food delivery could be somewhat disrupted by the virus, “there is this potential for faster growth in online”.
“China has obviously very high levels of [online] penetration, but the potential for that to even accelerate [exists],” he told a press conference.
Aneeka Gupta, associate director of research at US asset manager Wisdomtree, agreed. She said that “online dining, packaged food and food retailers should benefit from a shift in consumer preferences to avoid crowded public venues”.
Fidelity’s investment trust, the Fidelity China Special Situations, which is managed by Nicholls, has £1.4m (€1.65m) of total net assets.
The trust has suffered in the travel sector, some hotel holdings and Chinese online travel agency service company Trip.com Group, Nicholls explained.
The outbreak hit during the heavy travel season before Chinese New Year.
Gupta explained that “the coronavirus is likely to impact the transportation industry”.
“China Southern is one of the airlines most likely to be exposed, as it represents the top market share (38%) by seat capacity.”
Meanwhile, Gupta sought to understand the impact of the coronavirus by looking at the Sars virus in 2002 and 2003, which had a significant but short-lived effect.
“While the severity of the economic impact is unknown, it [the coronavirus] is likely to be short lived should it follow the pattern of historical cases,” she said.
Nicholls explained that domestic travel was only down 1% over the full year of 2003 after the Sars virus hit.
For 2020, Gupta expects that China’s long-term, ‘new economy’ growth pillars, such as consumption and information technology, will remain the drivers of growth.
Nicholls agreed, suggesting that the Chinese middle class is seeking increasingly to buy premium products, which he calls “aspirational consumption”.
Accordingly, the key theme of his portfolio, Nicholls explained, is consumption.
The Fidelity China Special Situations trust has outperformed its benchmark, the MSCI China (N) over five years, achieving 74.9% versus 68.9% (CAGR).
Its top five sectors are consumer discretionary (41.8%), communication services (18.7%), financials (18.2%), information technology (16.1%) and health care (11.3%).
The top five holdings are Tencent (13.1%), Alibaba Group (12.9%), China Meidong Auto (6.7%), China Pacific Insurance Group (4.2%) and China Life Insurance Company (3.2%).
One example of the opportunities can be seen with e-commerce giant Alibaba.
Its share price hit a record level of $230.48 on 13 January before dropping to a one-month low of $205.47 two weeks later. The share price, however, remains well above the group’s long-term average.
Regarding the US-Chinese trade deal negotiations, Nicholls expressed cautious optimism: “I wouldn’t be particularly bullish on phase two being signed anytime soon.
“But getting that initial deal, at least the two sides working together, is a positive in [terms of] how markets work. It’s really the uncertainty which has held things back.”
Originally posted in Expert Investor Europe
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