China services in demand
Investors eye prospect of service industry on growing middle class
HONG KONG: As Chinese leaders encourage the country’s 1.3 billion people to open their wallets to boost domestic demand, hotel chains, supermarkets and other service providers offer investors a fresh tilt at the country’s growth story.
Beijing is targeting a 4 percentage point rise in the service industry’s contribution to gross domestic product by 2015, up from 43% in 2010. This is well below the US service sector, which makes up about two-thirds of the world’s largest economy.
For investors with longer-term horizons, services that cater to a growing middle class offer an opportunity to cash in on a shift in consumption patterns as Chinese consumers move increasingly up the value chain, say analysts.
“There’s a lot of pent-up demand for services due to supply constraints,” said David Cui, Bank of America Merrill Lynch’s Shanghaibased chief China equity strategist.
Policymakers want increased domestic spending to offset a reliance on exports, and have outlined plans to narrow the rural-urban divide and boost wages for 158 million migrant workers. The services sector is vital for future job growth.
Supermarkets, logistics firms and tourism companies focused on domestic travellers offer good opportunities, says Cui, who recently authored a report on China’s services sector, though analysts warn that stock picking is still vital.
Sunart Retail group ltd has among the best long-term earnings growth potential of Chinese consumption peers, ranging from sportswear brands to luxury goods stores, according to Thomson Reuters Starmine projections.
One of China’s largest hypermart operators, Sunart’s Hong Kong listing last July attracted robust interest, and it has strongly outperformed the index of Hong Kong-listed Chinese companies.
Other retailers, such as Golden Eagle Retailing Group and Wumart Inc, would benefit from policy-driven consumption initiatives, while supermarkets are seen as likely to be able to fend off foreign competitors because of their understanding of local preferences. — Reuters