“Chinese commodity demand growth will remain in a downward trend over the longer term,” Jian Shi Cortesi, investment manager for Chinese equities at the firm, wrote in a recent research note.
“Capacity reduction will likely happen at a very gradual pace in order to avoid an unemployment shock, particularly in the material-producing regions.”
Despite a recent rebound in the materials and energy sectors, she believes they will remain under pressure for the long-term.
“So far this year, the materials and energy sectors have been the top performers in the Hong Kong-listed Chinese stock universe. This was partly due to the recovery of commodity prices and partly based on the hope of significant capacity reduction in the material sectors.”
Following the China’s National People’s Congress meeting, she believes the themes of consumption, technology and healthcare will continue to be the best places to invest in China over the long-term.
For the consumption sector, the Congress confirmed that the policies “will remain supportive, but not aggressive”, she wrote. The Chinese government also mentioned in its new five-year plan that it will introduce reforms in the technology and healthcare sectors.
Commodities and energy stocks listed in Hong Kong have had positive momentum so far this year, while the Hang Seng Index remains in negative territory. However, GAM is bearish on the sectors in the long-term.
