How to play the China rebound on the ASX

You don’t have to go overseas to invest in China’s anticipated post-Covid-19 rebound because ASX opportunities are as diverse as food to education.

The reopening of China offers opportunities to overseas investors. Picture: AFP

Money managers are pouring into China’s equity market to take advantage of the country’s burgeoning recovery. But Australian investors can play the China trade much closer to home.

Travel and tourism, education, resources and consumer goods are among the sectors poised to benefit from a China revival, according to top fund managers.

For Tribeca Investment Partners portfolio manager Jun Bei Liu, iron ore miners are among the biggest beneficiaries of China’s reopening. But with the mining giants approaching their all-time highs, they may have already had their run.

There are better opportunities elsewhere, Ms Liu suggests.

“One that (investors) should probably be looking at is travel. Chinese tourists have been a big component of the local tourism industry, sometimes up to 30 per cent. And these tourists will return,” she told The Weekend Australian.

“Now, that’s probably not going to be in the next few months, but they will return over, say, the next 12 months. So that’s a big positive for that sector.”

Tribeca Investment Partners portfolio manager Jun Bei Liu. Picture: Jane Dempster

As with other countries when restrictions were lifted, Chinese tourists are set to embark on a period of “revenge travel” now the shackles of zero-tolerance to Covid-19 have been thrown off.

Chinese airlines are already starting to ramp up flights to Australia in a move that many hope will bring down airfares. This could prove to be a boon for tourism operators but may not be such a positive development for the likes of Qantas, according to Ms Liu, who manages Tribeca’s Alpha Plus Fund.

“Right now, Qantas and Virgin are over-earning because of demand and capacity constraints. But I think ticket prices will come off in the next six months (as Chinese carriers return),” she said.

“But tourism operators, Flight Centre and the like, they’ve been waiting for Asian tourists to return. This is a big market for them.

“Flight Centre has some issues they need to cycle through, such as commissions. But investors could look at Webjet and Corporate Travel.”

Theme park operator Ardent Leisure is another listed company poised to shine from the coming bump in China tourism, Ms Liu said.

Qantas and Virgin “are over-earning because of demand and capacity constraints”. Picture: Ian Currie

Elsewhere, A2 Milk, already up 30 per cent this year and Treasury Wine up 20 per cent, are on her list as potential outperformers this year – A2 Milk due to China’s reopening and Treasury Wine from the thawing of relations between the two countries.

For investors looking further afield for growth, Ms Liu is bullish about Hong Kong-listed duty free operator China Tourism Group Duty Free Corporation. This was her top pick for 2023 at the Sohn Hearts & Minds Investment Leaders Conference in November. It is a “pure play” bet on China’s recovery, she said.

“It has performed incredibly well, but he will continue to do so because it’s directly linked to the China reopening. It’s got a great balance sheet and it’s just pure play.”

For investors wanting to follow the smart money into China but through the ease of the ASX, ETFs are a good option. Indeed, these passive funds are already recording strong inflows of late.

An employee shows a raw jade stone at a shop in Ruili, west Yunnan Province where life is returning to normal. Picture: AFP

Since the start of January, local ETF provider BetaShares has seen renewed interest in its BetaShares Asian Technology Tigers ETF (ASX: ASIA). The fund this month saw its first inflows since May 2022 – and, at $8.5m, the largest inflows since August 2021.

Funds under management at the ETF have also just bounced back over $500m for the first time in a year.

Like Ms Liu, Maple Brown Abbott small caps portfolio manager Phillip Hudak is bullish about the outlook for Webjet and Corporate Travel. He also likes adventure tourism small cap ExperienceCo.

Education will be another sector to ride the China recovery wave, he predicted.

“We’re seeing a fast recovery in net migration. You‘re starting to see a bounce back from a very low base in students as well as short-term visas, and the reopening of China is expected to add to this trend,” Mr Hudak said.

“Education is Australia’s largest service sector export, and prior to Covid Chinese students made up 40 per cent of total foreign students (in Australia). It will take some time to see Chinese student (migration) get back to more normal levels, but there are some key beneficiaries.”

Cabernet sauvignon grapes being harvested at Treasury Wine Estates’ Wolf Blass vineyards in the Barossa Valley. Picture: Bloomberg

These include IDP Education and, to a lesser extent, NextEd, he said.

IDP Education and one of Ms Liu’s picks, Treasury Wine, also appear on UBS’ most preferred stock list, according to a note put out this week by equity strategist Richard Schellbach.

On the consumer goods side, Mr Hudak’s pick is vitamins-maker Blackmores.

“I think they could potentially be a beneficiary. China sales represent approximately 20 per cent of total group sales and you could see increased demand for immunity-related products from there,” he said.

On the resources sector outlook, Ms Liu and Mr Hudak see the iron ore majors as big beneficiaries of China’s reopening. But both are cautious given the big share price lifts of late, and Ms Liu suggested it might be time to take some profits. Mr Hudak questioned whether the fundamentals for resources supported the price moves.

“I suspect the path of least resistance is for resources to actually hold or even go up in the current environment. Medium term, it’s a question of whether or not the fundamentals actually support the price gains that we’ve seen recently,“ Mr Hudak said.

“It may actually take longer for the recovery, or Chinese demand, to actually eventuate versus market expectations – particularly as the Western world demand has the potential to flow into a slower economic environment.”