Trouble ahead for the Chinese consumer – Fidelity

There is trouble lurking for consumer-facing businesses in China, says Fidelity’s Nick Price, and investors must be diligent in this difficult environment.

Trouble ahead for the Chinese consumer - Fidelity

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For some, the ongoing the China malaise is simply a signal to pack up their investments and leave, at least until market choppiness begins to ebb.

But for others, particularly China and emerging market specialists, it is an issue that must be taken in their stride as they seek out investments that can weather the storm. This includes Price, manager of the Fidelity Emerging Markets Fund, who has 18.9% of his portfolio in Chinese equities.

However, while there are managers who view domestic consumer-facing businesses as best-placed to ride it out, Price has sounded a warning to those looking to buy into the sector.

“What people need to remember is that during the past 15 or 20 years we have seen margins in the global consumer staples sector move up from about 10% to 15-20%,” he said.

“There has been enormous margin expansion resulting from better supply chains and consolidation of purchasing etcetera, and we need to be cautious about these high levels.”

Despite increased wealth among the middle class, Chinese consumer confidence is at its lowest level since September 2014.

Price believes that moving forward this will be exacerbated by the turbulent economic picture, and, having recently reduced his exposure to consumer staples, encouraged investors to be diligent when selecting perceived opportunities.

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