Stocks of companies in mainland China have meaningfully lagged those in the U.S., Taiwan, and Hong Kong through the first nine months of 2021, partly influenced by China’s tighter monetary policy, as well as rising regulatory and geopolitical risk. Given what’s been a significant pullback, Fidelity’s Ivan Xie says he’s seeing select growth stocks in the country at attractive prices.
“Our team has found reasonable stock valuations and improved risk-reward profiles for long-duration growth names, and we’re excited about recent opportunities,” says Xie, co-manager of Fidelity® China Region Fund (FHKCX).
Xie and co-managers Stephen Lieu and Peifang Sun seek high-quality growth stocks at reasonable valuations as well as cyclical stocks at cheap valuations. They say they have found some “great” opportunities in the former category in recent months.
China’s economy is increasingly known for its new-economy sectors, says Xie, who cites Meituan (MPNGF) as a domestically oriented company that is taking advantage of mega-trends in the country.
Meituan is a dominant local-services provider that hooks up locals with everything from food delivery to spa services and hotel bookings, Xie says. The stock trended generally lower early in 2021, due to losses related to expanding its community group-buying services. Yet Xie believes the company could succeed longer term, and accumulated shares on price weakness.
The fund also invested in Zai Lab (ZLAB), a biotechnology company that’s working on treatments for autoimmune ailments, infectious diseases, and cancer. Xie says the company’s management team continues to execute well by signing attractive licensing deals for drugs it can bring to market in China, while also developing in-house drugs.
Lastly, Xie and team raised their stake in Pinduoduo (PDD), which they consider one of the leading e-commerce players in China, with dominant positions in lower-tier cities in the country. The company takes part in the community group-buying trend in China, which got its start amid the pandemic and remains popular, according to Xie.
“We’re finding many innovative, fast-growing e-commerce, tech, and biotech stories in China with solid business models and access to huge local markets that are trading at surprisingly fair prices,” Xie says.
Fidelity® China Region Fund held securities mentioned in this article as of August 31. For specific fund information, including full holdings, please click on the fund trading symbol above.
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