Investors in China have had a difficult time recently. The Shanghai Composite Index has fallen by 17% this year and is down around 10% over the past five years. But one fund manager thinks there are pockets of value in certain “core sectors” even while financial conditions are tight. Edmund Harriss, head of Asian and emerging market investments at Guinness Asset Management, is optimistic about China over the long term despite its recent challenges over Covid-19 lockdowns and an overextended real-estate market . He believes China’s government has decided to “reset” and face some of the country’s long-term challenges, such as an aging population and a smaller labor force. “That means your labor force has to become more productive or produce higher value-added activities. And so, they are looking to move into core industries in which they can dominate,” he said. The electric vehicle play Harriss, who manages the Guinness Asian Equity Income fund, said companies in the electric vehicle sector, factory automation, and sustainable energy field would likely outperform their global peers over the next five to 20 years. He cited BMW ‘s decision to award Chinese companies CATL and Eve Energy the contract to set up battery manufacturing plants in Europe as examples of companies succeeding in those sectors. Both companies will begin supplying the German carmaker with batteries from 2025 for its next-generation electric vehicles. “[Chinese] battery makers are very good. A lot of capital has gone into that area. That is a visible example of where China is looking to excel,” he added. Shares for CATL, the world’s largest EV battery maker, have fallen by 30% this year but are up by more than 650% over the past five years. Earlier this year, the company was reportedly firming up expansion plans to set up a battery production facility in South Carolina and Kentucky to supply BMW and Ford . Its customers also include Tesla and Volkswagen . Similarly, Eve Energy has seen its share price decline by 25% this year but is up by 530% over the past five years. “I seem to be a bit out of step with the rest of the market because I think there’s lots to buy in China,” the fund manager overseeing more than $200 million in assets said. “Valuations across the board are looking pretty attractive in my view.” Eve Energy and CATL make up 5.65% of the KARS ETF, which is available to both U.S. and U.K . investors.
