Although some sectors, such as construction firms, are often the direct beneficiaries of government spending, the benefits might be short-lived and not transferred to shareholders, explained Matthews Asia CIO Robert Horrocks.
“Although the governments are going to be more involved in the economy, [as investors] you don’t necessarily want to jump in,” he said in a briefing on Wednesday.
“We are relatively more pessimistic on these so-called traditionally government sponsored companies.”
Horrocks cited an unnamed leading infrastructure company in India, whose sales growth hit nearly 400% for the eight years until March 2015, but total returns to shareholders were negative.
Banks, materials, industrials, and construction companies might have a strong rally in the markets, “but we don’t necessarily see there’s a long-term value.”
Rather, Horrocks argued that consumer-oriented businesses have more efficient operations in terms of cost-cutting or returning value to shareholders.
“Our focus would continue to be where the middle class is going to spend their money ten years from now,” he said. Sectors such as retail, healthcare, insurance, leisure and entertainment have long-term appeal.
Furthermore, Horrocks rates Hong Kong equities among the cheapest across Asia markets, and Matthews’ funds have exposure to Chinese businesses, including insurance, consumer staples and consumer discretionary.