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China’s hard hit travel sector still has value: JPM AM

Certain travel-related companies continue to exist despite the Covid-19 pandemic and they have long-term investment appeal, says a portfolio manager at the firm.
Howard Wang, JP Morgan Asset Management

A number of wealth and fund managers have cautioned against holding travel-related companies as they have been largely hit by the Covid-19 pandemic.

UBS Wealth Management, for example, recommended clients to avoid airlines, casinos, hotels and other travel-related segments given the risk of sharp near-term earnings.

Instead, the firm believes that investors should hold healthcare and technology companies as they have become more resilient during the pandemic. Other wealth managers, such as HSBC Private Banking, also favour both sectors given their structural growth themes.

Howard Wang, JP Morgan Asset Management’s Hong Kong-based head of Greater China equities, agrees, but believes there are still opportunities in some of travel-related names.

At the start of the year, roughly about 5% of the firm’s China A-Share Opportunities Fund, which Wang manages, was in the travel sector. Although Wang has reduced exposure to the sector, the segment still accounts for 3% of the fund’s assets.

“The reason we still hold some [travel-related names] is because we are long-run investors with a forward-looking view, and if we think that a franchise remains attractive for the longer-term, then we can be quite patient,” he told FSA..

“Our thesis had been that a growing middle class of consumers with increasing levels of disposable income would choose to travel more, within China and internationally. Beneficiaries would include travel companies, airports and hotel chains.”

For example, Wang’s fund is invested in the Shanghai International Airport. He believes that the company has high barriers to entry and an attractive longer-term story on the back of traffic growth over time.

“In the long-term, Shanghai’s position as an Asian hub will only expand,” he said.

Wang said, however, he does not hold any airline companies because they have weaker competitive dynamics and are likely to see “profound post-Covid impact” on their business.

Favoured names

Healthcare, technology and consumer-related names in China continue to be areas where Wang sees long-term growth opportunities. Collectively, the sectors make up nearly half of the China A-Share Opportunities Fund.

Wang noted that while the Covid-19 has caused a short-term shock to the broader Chinese economy, some names  in the healthcare and technology space have benefited and provided huge gains for investors.

For example, Shenzhen Mindray Bio-Medical Electronics rose nearly 40% in renminbi terms this year toward the end of March, according to Wang.

“It sells re-agents used in medical diagnostic testing – an area which has accelerated due to the coronavirus, but which remains a longer-term growth area as China’s diagnostic industry continues to develop.”

He added that the company has also been selling ventilators abroad, especially to Italy.

In the IT sector, Shanghai Baosight rose at least 20% during the first quarter, given its role as an internet data centre operator.

“As people worked from home, and as industrial companies digitise further, its business has been benefitting,” he said.

Wang’s China A-share strategy holds both companies, though they are not in the top 10 holdings, he noted.

The JP Morgan China A-Share Opportunities Fund

Source: JP Morgan Asset Management.

Like the manager of another of the firm’s growth-oriented Asia-focused equity strategies, Wang favours quality companies, which he summarises as industry leaders with stable earnings and preferably strong franchises.

The JP Morgan China A-Share Opportunities Fund versus its benchmark and sector

 Source: FE Fundinfo. Three-year return in US dollars.


Part of the Mark Allen Group.