Ebrahim’s thesis is very much in line with Beijing’s most recent 5-year plan, which highlights the government’s commitment to increasing household incomes and boosting domestic consumption.
According to the Boston Consulting Group, there will be 270 million more consumers whose annual household incomes exceed 60,000 yuan ($9,000) in China by 2020.
Three Hot Stocks to Watch
The pan-Asia equity fund manager recommends the following three stocks: lingerie-maker Embry, meat product manufacturer China Yurun and leading supplier chain manager and Li & Fung.
Embry, tagged as “China’s answer to Victoria’s Secret” is undervalued, says Ebrahim, adding that the stock has another 30-40 percent upside, following its 20 percent climb in the last month. “(Embry is) not heavily covered by the sell-side. Once a bit of noise comes out that we have a specialist player in this segment, you may see further upside.”
He notes that the company has over 1,700 retail outlets in over 180 cities in Greater China and has a target is to add 100 points-of-sale this year.
As for China Yurun, “the largest player in a very fragmented sector”, he expects the government’s new initiative to encourage the development of the country’s hog industry to lend support to the stock.
Finally, Ebrahim is betting on leading Wal-martsupplier, Li & Fung, which he believes will continue to sign sourcing deals in China, like the company’s the recent agreement with sportswear maker Li Ning. “That’s going to be an added growth driver.”
Outside of the China market, Ebrahim is bullish on Japan’s heavy equipment manufacturer Komatsu and Nitto Denko as well as India’s IT services firm Infosys and mortgage-financing company HDFC.
“In terms of our exposure, we're still more overweight China but we're excited about India…I (just) think the market needs a breather,” he concluded.
Click here to watch Aadil Ebrahim's full interview.
Ebrahim has company holdings in China Yurun and Embry.