These four ASX companies are primed to benefit as China accelerates out of COVID-19
Health & Biotech
Health & Biotech
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China is well known for its pull on Australian commodities like copper, iron ore and gold, but less known is the Asian economy’s consumption of Australian goods and services.
In headline terms, China’s giant economy grew by a rate of 2.3 per cent across the 2020 year, and its expansion actually accelerated in the December 2020 quarter to 6.5 per cent, according to S&P Global Platts in a recent report.
Beijing used a range of economic levers including targeted government spending, infrastructure projects, and generous business lending to engineer a recovery from the pandemic.
The Chinese economy appears to have shrugged off the negative effects of the COVID-19 pandemic, and is poised to grow strongly in 2021 with consensus estimates at up to 9 per cent.
“The International Monetary Fund’s GDP growth projection for China is at 8.2 per cent, while [Japanese bank] Nomura’s forecast stands at 9 per cent,” said S&P Global Platts whose own forecast for Chinese economic growth this year is 7 per cent.
Closer to home, Commonwealth Bank of Australia is forecasting growth in China’s economy toward the top of the consensus range.
“We forecast the Chinese economy to remain the driver of economic growth with growth of 9.2 per cent year on year in 2021,” said CBA analysts in a report.
The Australian bank is expecting China’s economy to begin to moderate its growth slightly later in the year, as Beijing gradually reduces COVID-19 governmental support measures.
That said, Chinese consumers have “amassed a large pool of wealth amid China’s economic rise”, said CBA analysts, and therefore they have some spare funds to spend on imported goods.
Investors in Australia may be looking for relatively safe ways to gain exposure to China’s fast-growing economy without the price volatility seen in commodity and resources markets.
With this in mind, Stockhead asked investment management company Equitable Investors‘ founder and director Martin Pretty for his views on ASX companies serving China through the Covid-19 pandemic.
First, a disclaimer from Pretty, who stressed that while he and his firm cannot make stock recommendations to retail investors, he can talk about what his firm is doing within its investment portfolios that it manages.
Equitable Investors has four ASX stocks that it currently owns within its managed investment portfolios and Pretty disclosed these and the reasons for holding them currently.
Comms Group (ASX:CCG)
“This junior telco is a left-field choice, but one of the things that excites us about CCG is that it has opportunities to provide in China its unified telecommunications solution for Microsoft Teams,” said Pretty.
“CCG is ‘the first and only provider of Microsoft Teams calling in China’,” he said.
“Skype for Business is being retired by Microsoft on July 31, 2021, creating a significant opportunity for existing corporates in Asia to look at taking up CCG’s unified communications solution,” said Pretty.
“This company has developed dietary supplements to support the growth of children that have been backed by scientific studies in Israel,” said Pretty.
“In its early days it licensed off its product for the Indian market in return for an upfront fee,” he said.
“It currently sells into the US, but now it is tackling China directly.
“NGS has partnered with child celebrity Gavin Thomas, who has more than 8 million followers and cult status in China. Gavin is set to promote NGS in China and be rewarded based on sales.”
“A Perth-based company that provides digital marketing and e-commerce capability inside China for brands from Australia, NZ and around the world,” said Pretty.
“Its market cap is ~$17 million and it has announced contracts with an estimated value of $22 million.
“RLG represents brands across the spectrum of beauty, personal care, health and nutrition – and further afield like Perth Airport or networking equipment maker D-Link.
“Brands pay annuity fees and royalties or commissions to RLG for selling their products in China’s digital marketplaces.
“RLG has the expertise at taking brands to market that so many brands lack and we believe contracted revenue growth is illustrative of brands recognising that,” said Pretty.
“This medical device company founded out of Coffs Harbour took on a Chinese pharmaceutical industry executive as a shareholder and has rapidly developed its business in China, aided by COVID-19,” said Pretty.
“China national health authorities recommended [its Uscom 1A] device type for noninvasive and convenient cardiovascular monitoring of COVID-19 patients, which is the only globally available device.
“UCM emerged into profitability in the six months ended December 31, 2020, as its sales of goods surged 232% to $2.27 million.
“UCM is heavily committed to China with further growth expected as the company also looks at developing a manufacturing capability in China,” added Pretty.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.