The Point

Samir Mehta: Trump tariffs are unlikely to impact China’s big online retailers

Investors should be ready for any scenario as Donald Trump weaponises trade tariffs.

This week we await the outcome of a call between Trump and Chinese president Xi Jinping to find out if tit-for-tat US-China tariffs will be paused as they were for Mexico and Canada.

But either way it would take a lot to disrupt the momentum of China’s big online retailers, argues Pendal’s Samir Mehta.

Last year China’s four big online shopping platforms – Alibaba’s AliExpress, TikTok, Shein and Temu – shipped almost $US200 billion worth of goods internationally. Of that, some $45 billion went to the US.

In anticipation of tariffs, Temu and Shein had already modified bulk shipping, diversified logistics and expanded their US networks. Meanwhile as TikTok’s future hung in the balance, Americans flocked to another Chinese app: Xiaohongshu.

“When a product provides a value proposition far superior to alternatives, tariffs might temporarily alter – but not permanently change – human behaviour,” says Samir.

Samir Mehta: How luxury stock Prada is making a fashionable comeback

Samir Mehta: Tune in to Tencent Music if you’re looking for a hidden gem

WHO is the Bob Dylan of music streaming?

That’s the question Pendal’s Samir Mehta posed at the Sohn Hearts & Minds Conference in Adelaide last month.

For most, the answer is obvious: Sweden’s Spotify has revolutionised the way we consume music, dominating developed markets and setting the benchmark for subscription-based streaming.

But in investing – just like in music – real success is found beyond the obvious.

For every Bob Dylan – whose sandpaper voice and sermon-like lyrics changed the face of music worldwide – there’s a Sixto Rodriguez: overlooked by mainstream audiences until an Oscar-winning documentary, Searching For Sugar Man, revealed he had been quietly building a cult following in small but devoted markets.

“Spotify has done a brilliant job in developed markets, but there’s lots of other markets that still have potential,” says Mehta, who manages the Pendal Asian Share Fund.

“What we need to do is search for the Sugar Man of streaming.”

“Music follows exactly the same trends across the world – and the Sixto Rodriguez of streaming is China’s Tencent Music Entertainment.”

Emerging Markets: Where to look for investment opportunities in Asia

Asian economies are shaking off China’s slowdown and showing signs of renewed vigour, sparked by a wave of tech innovation and a global trend to supply-chain diversification.

That’s the view of Ada Chan, a portfolio manager with Pendal’s emerging markets team and Samir Mehta, who leads Pendal’s Asian shares strategy.

Renewed optimism for Asia is a reminder to avoid the trap of assuming temporary challenges are here to stay, says Samir.

“Headlines about tariffs and geopolitics are all we hear of.

“But each and every company we meet with is reacting in a different manner, adjusting and getting more competitive to deal with these challenges.

“All the company meetings we do and the managers we meet make us reasonably confident that if liquidity conditions get better – which is the potential in the next 12 to 18 months – Asia could be well set for a decent run in terms of economic activity and potentially even stock market performance.”

In this article, Samir and Ada explain how to find investment opportunities in China, Taiwan, Korea and India – read more.

Emerging markets: Why China is unlikely to face a Japanese-style ‘lost decade’ despite its cloudy outlook

There is a temptation to see China falling into the same kind of balance-sheet recession that Japan experienced after its late 1980s boom, says Pendal’s emerging markets team.

Japan’s Nikkei index has only just this year regained its 1989 peak after a series of so-called “lost decades”.

Given the historical pattern of a decade-long, debt-driven real-estate boom followed by what looks like a debt-deflationary slowdown, do Chinese equities also face a similar “lost decade”?

From beer to luxury products to cosmetics to cars, a clear pattern has emerged among western multinational companies warning about weak Chinese demand.

But a closer look at company results shows a different, more promising pattern, argues Pendal’s team in a new article.

Many Chinese domestic companies are reporting good results and earnings growth. Consensus estimates of future earnings are also being revised up.

There are opportunities to be found in Chinese equities, the team argues. “We remain overweight Chinese equities in the portfolio, with exposure to a highly selective set of stocks.”

Read more here

Global market volatility should be positive for stocks in some emerging markets