China's innovative companies have high ROE

Added 20th June 2016

Fidelity International's portfolio manager Raymond Ma sorts through China's low growth economy for innovative strategies.

China's innovative companies have high ROE

Raymond Ma

In China, companies that adopt innovation strategies generally have a return-on-equity over 15%, and sometimes 20%, compared to mid-to-low single digits from “old industries”, Ma said at a briefing today.

Innovation is a vague word, but Ma said it applies to a variety of sectors such as IT, financials through fintech developments, as well as old, traditional sectors.

He gave the example of an unamed company that produces lingerie utilising their patents to develop high-end shoes.

Innovative IT companies in China can also “leverage the production base and supply chain” that used to serve mainly to foreign players such as Apple.

He mentioned the example of Huawei, an unlisted smartphone maker in China. Prices of its latest model smartphones have risen to $633 this year from $175 in 2010.

China is transitioning from an exporter of manufactured foreign products to a technology copycat to the current stage of innovation, Ma said.

Other innovative investment ideas to watch for the next five-to-ten years include manufacturers of hoverboards, drones and robots, he said.

Fidelity's global equities chief investment officer Dominic Rossi added it was timely to focus on companies that are making significant changes within established markets.

“We are in an era of low nominal growth rates, and investing in innovative companies is a way for equity investors to escape the low velocity world." 


Ma manages three equity funds: Fidelity China Consumer Fund, the Fidelity Greater China Fund and the Fidelity Taiwan Fund.



Ma is also an FE-designated "alpha manager", who has outperformed his peer group composite over multiple time periods, according to FE data.



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