China scales new wave of transformation, says Fidelity Worldwide Investment

Key sectors identified to capture new domestic growth

HONG KONG, 8 January 2014 – Against a backdrop of sweeping political, economic, social and structural changes, a new China is emerging, driven by different growth catalysts and offering new investment opportunities; but it also faces fresh challenges and macroeconomic issues. A fundamental bottom-up research is crucial to select winning stocks, says Fidelity Worldwide Investment.


Raymond Ma, Portfolio Manager of Fidelity Funds – China Consumer Fund, said, “China is in the middle of a delicate rebalancing away from vast, state-driven investment and breakneck export and infrastructure-led growth towards a domestic consumption-driven economic model, which I call ‘New China’.”


“Challenges range from rising land and labour costs to appreciation of the RMB and bottlenecks imposed by China's legacy economic model,” he said. “The new leadership is looking for new drivers to sustain China’s future growth.”


Mr. Ma believes that at the heart of this transformation is a shift in focus from quantity to quality of growth, as outlined in the nation’s 12th Five Year Plan (2011-2015). Expanded domestic demand and an overhauled and radically improved industrial base are the goals of this plan, with China's own consumers replacing infrastructure investment and supplementing exports as the drivers of growth. The sectors embraced by this new paradigm - including consumer discretionary, staples, information technology, insurance and healthcare - are likely to double in size over the next five years in terms of its weighting in the MSCI China Index.


China’s new growth prospects centre on Four NEWs – new drivers, new policies, new catalysts and new media – and notes that reforms and structural changes are being implemented to facilitate their development.


“This reorientation of China’s economy brings fresh factors to the fore in terms of stock picking, and we’re seeing dynamic growth in some key yardsticks indicating that China's new economic model is upon us,” Mr. Ma continued, “Despite the well-publicized short-term bumps in the growth trajectory, China's domestic demand is resilient, and there are a number of ways to play the development story such as in domestic pharmaceuticals and renewable energy stocks. New media, technology and retail sectors will also grow as Chinese consumption shifts online, particularly via mobile devices like smartphones. Industry consolidating M&As are also new catalysts for growth and better performance, and investors should watch for opportunities.”


“China’s recovery has been slow. However the Third Plenary Policy Document in November 2013 laid out the roadmap of the reforms. New policies such as rural property rights to be tradable and hukou control to be removed in mid-small cities will stimulate consumption which will help the transition from Old China to New China,” Mr. Ma said. “Another key focus of the reform is deregulation, including greater market access, fairer competition rules and easier sources of funding for private enterprises, which could include further interest rate liberalization. Opening up industries such as financials, telecommunications and energy, will allow private companies to take a bigger role in China’s economy. This could set the stage for a significant step-up in growth for private companies over the coming decade.”


Mr. Ma concluded, “China’s transformation will create a greater divergence between sectors. A bottom-up research is the key to identify the companies which will be benefited from the country’s changes.”


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Notes to editors:


About Fidelity Worldwide Investment

Fidelity Worldwide Investment is one of the global leaders in asset management, providing investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific. Established in 1969, the company has over 6,000 staff in 24 countries and manages or administers client assets of US$329.2 billion. It has over five million customer holdings and manages more than 660 equity, fixed income, property and asset allocation funds. The company’s fund managers receive research from one of the largest proprietary research teams, based in 12 countries around the world. Fidelity Worldwide Investment is an independent asset management company which is privately owned.

Data as at 30 September 2013


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