Henderson Favors China Consumer Stocks on Economy Shift

Henderson Global Investors Ltd.’s Caroline Maurer is favoring consumer stocks for her China fund after Premier Wen Jiabao pledged to end the economy’s reliance on investment and exports in favor of domestic consumption.

Maurer holds Baidu Inc. (BIDU), owner of China’s most popular search engine, and Lenovo Group Ltd. (992), the world’s second-biggest maker of personal computers, which will benefit from the government’s efforts to increase consumer spending through measures such as cuts in import taxes. She co-manages the $254 million Henderson Horizon China Fund (HENCHFA), which has beaten 94 percent of rivals in the three years through Feb. 29 with a 27 percent return, according to data compiled by Bloomberg.

“The focus is really on the reform of the structure of the growth,” Maurer said in a March 12 phone interview from Singapore. “You want more growth from the consumer-related side so we will continue to pick stocks that benefit from this trend.”

Wen said today this year’s lower economic-growth target is necessary for changing the structure of the nation’s expansion.

China trimmed the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005, a signal that leaders are seeking to shift toward expansion driven more by domestic consumption as against exports and capital spending. Wen delivered the lower target at the annual meeting of the National People’s Congress in Beijing on March 5. The government also highlighted plans to endorse higher minimum wages to reduce the risk of a slowdown turning into a so-called hard landing.

Wage Inflation

China’s retail sales rose 14.7 percent in January and February from a year earlier, the National Bureau of Statistics said March 9. That compared with the 17.6 percent median estimate in a Bloomberg News survey of 16 economists.

Barclays Plc is also recommending investors consumer discretionary stocks because real wage inflation may help Chinese people spend more on products. Beijing-based Baidu, which is listed in New York, is among the Chinese Internet companies that will benefit from growth in e-commerce and a shift in advertising budgets to online video from television, Barclays said in a report dated March 1.

Baidu has gained 20 percent in 2012, while Lenovo has risen 32 percent. Lenovo posted a 54 percent increase in third-quarter profit on Feb. 9, spurred by orders for office computers.

The Hang Seng China Enterprises Index has rallied 16 percent in 2012 amid speculation China’s central bank will cut lenders’ reserve requirements to halt an economic slowdown. The index of Hong Kong-listed Chinese stocks trades at 8.7 times estimated profit, compared with 10.2 times for the Shanghai Composite Index and 10.9 for the MSCI Emerging-Markets Index.

Chinese stocks are “quite cheap,” said Maurer, who also likes Digital China Holdings Ltd. (861), a distributor of technology products, and Dongfeng Motor Group Co. among consumer companies. Maurer said she is avoiding shipping stocks like China Cosco Holdings Co., the nation’s biggest shipping line, after the stock jumped 38 percent this year.

“The market has been discounted” said Maurer. “A lower growth target will make investors think it’s more sustainable.”

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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