How to ride the Red Dragon

If that sounds trite, consider – as many likely have done in recent years – China. As one of the most dynamic and rapidly-evolving economies in the world, it’s been drawing the interest of many investors throughout the world looking to expand beyond their domestic portfolios.

What’s odd, though, is how little is actually understood by those looking in from the outside – including this writer. Which is why we recently sat down with Yu-Ming Wang, global head of investments at Nikko Asset Management, to get a clearer perspective on this emerging investment opportunity.

A moving target

Wang noted that the easiest way to see how quickly China is evolving is to actually go there. “The pace of change,” he explained, is just much faster than in developed markets.

“If you haven’t gone to China in the last two to three years,” he said, “you’ll see a noticeable change. That speed of change, and the willingness to try new things and innovate, happens so much faster in China than anywhere else.”

Boots on the ground

In order to capitalise on that, he continued, “you have to be on the ground. The market is very big – China has over 2,000 listed companies, and they’re scattered around the entire country.”

“Having the manpower to meet those companies,” he said, “as well as talk to those clients and validate their business models is crucial. And while thinking long-term is important, when it comes to the short-term, the devil is definitely in the detail.”

The new middle class

Part of this, he said, was because of how quickly consumer trends are shifting. Wang said China’s middle class – along with the emerging middle classes of neighbouring countries – will shortly dwarf North America and Europe combined.

As this happens, the kinds of products and services people purchase will inevitably change. As Wang put it: “When the middle class gets wealthier, they typically want to have a healthier lifestyle. Sports is the next phase of that, so your Nikes and Adidases are probably going be the most profitable companies to benefit from that.”

Interestingly, though, another trend is that Chinese middle class consumers are increasingly turning towards domestic brands.

“The reason for that,” Wang said, “is that local brands are smart enough to increase their quality while remaining in an affordable price range. They’re also signing up Western sports stars – the Michael Jordans and Roger Federers of the world – to appeal to Chinese consumers.”

This trend, he added, also applies to things like smartphones as well.

For all these reasons, it’s clear that one of the best ways to capture the rise of China is by partnering with those who have the expertise and manpower to find where the real growth is occurring.

This article is based on an interview with Yu-Ming Wang of Nikko Asset Management. Watch the video: