The imminent opening of Disneyland Shanghai, the virtual reality revolution, and the increase in the number of electric cars on the roads are getting investors in China seriously excited right now, according to Credit Suisse.
Generally speaking China’s markets have been sluggish in recent months. Investors are worried about the weak renminbi and unforeseeable policies from Beijing, and that is stunting general investments.
However, against this backdrop, there’s serious interest around three areas of possible investment, Credit Suisse’s research analyst Li Chen says.
Here’s an extract from Li’s China A-Share Strategy note (emphasis ours):
There are three investment themes being talked about.
(1) The opening of Shanghai Disneyland in June-2016. Most investors are looking at opportunities in airlines/hotels rather than airports.
(2) The new energy vehicle (NEV) chain. The battery/battery materials (lithium)/ electrical system in NEVs has been chased by local investors as they believe demand for these will continue to grow. However, they do not like auto makers because they believe such companies rely on subsidiaries, and there is lack of competition with global peers.
(3) OLED and VR. New products have resulted in investors re-evaluating the prospects for these two industries.
Disneyland Shanghai is foremost in investors minds. When it opens, it will be the first Disneyland on mainland China, and will have cost around $5.5 billion (£3.8 billion) to build. Investors are largely excited by the opening of the new theme park as it is expected to give a huge boost to tourism in Shanghai, China’s financial centre, and the country’s most westernised city.
The park will open on June 16, and demand is expected to be huge. Ticket touts are already selling tickets for the park at well above their face value, and there is evidence that airfares to Shanghai are being driven up by the park’s opening.
Earlier in May, China Daily reported that the day after the park opens, prices for a flight from Beijing to Shanghai will increase from around 490 yuan (£51, $74) to 620 yuan (£64, $94). As Credit Suisse notes, investors are particularly looking to put money into airlines and hotels to cash in on the boom in tourists from the park.
Investors are also sold on the idea of putting money into the technologies behind so-called “new energy vehicles” — essentially hybrids and electric cars. China is already the second biggest market for NEVs in the world after the USA, with 300,000 registered in the five years since 2011. Instead of directly putting money into the automobile manufacturers, investors are making investments in batteries and other component parts. As CS notes, this strategy is because automakers “rely on subsidiaries, and there is lack of competition with global peers.”
Finally, with virtual reality increasingly coming into mainstream availability thanks to headsets like the Oculus Rift and the HTC Vive, investors in China are looking to get involved in the technology. VR has received a serious endorsement from China’s Ministry of Industry and Information Technology (MIIT) which earlier this year published a white paper which predicts that the VR consumer market will triple this year to £597 million ($873 million) from £162 million ($237 million) last year, according to tech site AP-OIP.
While these three areas are booming, investors are moving away from traditional inflation based investments like commodity stocks and agricultural goods, thanks largely to an impending Fed rate hike, and worries about market liquidity, Credit Suisse says:
Stocks related to ‘inflation’ (e.g. commodity and agriculture goods) have not followed the path of ‘inflation’. Further, most investors do not believe in ‘supply side reform’ as there are many factors that could hinder such reform. For instance, local governments do not have enough resources to fund possible unemployment issues as their tax revenue growth will continue to decrease.
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