Higher earnings visibility and growth offered by domestic sectors

Higher earnings visibility and growth offered by domestic sectors

China’s domestic sector has grown significantly and now constitutes a dominant share of GDP. The domestic economy has staged a recovery following the disruption caused by Covid-19 and remains resilient due to several factors.

Firstly, China has imposed strict control measures to contain the outbreak and we believe the government has demonstrated its capability to manage the situation. Secondly, policy support is evident with lending rates and banks’ reserve requirements being cut several times to enhance liquidity. At the same time, the budgetary fiscal deficit has increased and special Covid-19 government bonds have been issued to boost infrastructure spend and employment. As such, domestic sectors such as industrial production and retail sales have been improving since March 2020 (figure 1) and we expect them to gather momentum as economic activities normalises further.

Figure 1 - Chinese economy is on the path to recovery (growth y-o-y, %)
Chinese economy is on the path to recovery
Source: NBS, Morgan Stanley Research, as at June 2020. Smoothed line.

Ongoing geopolitical risk has led to a greater tilt towards consumer-related stocks

The past few years have seen a rise in geopolitical tensions between the world’s two largest economies. We are closely monitoring the situation given the change in presidency in the US. We believe tensions between these two countries are unlikely to go away given their strategic rivalry. That said, we believe the new US administration might take a different approach while dealing with competition from China. We believe the risk of further market disruptive policies being introduced has declined.

Domestically focused companies offer higher earnings visibility and growth

We have positioned the strategy to capitalise on domestically focused companies, by selecting stocks benefiting from structural growth trends. We believe these stocks offer higher earnings visibility and growth, and will deliver sustained returns for investors. Our analysts on the ground have noticed a strong increase in consumers’ wealth which is driving up overall spend as well as demand for more high-end products. Since the latter can be sold at higher prices than lower-end products, some companies are improving their product offerings to meet this demand. This has led to our investment in a large tissue producer, a long term holding in the fund.

The company is moving its product mix towards mid-to-high end tissues and is doing so, within a growing market. The per capita tissue consumption in China has grown at a CAGR of 8% (2010-2018) versus global growth of 3%1. In particular, non-toilet tissues including facial tissues, as well as higher-end products have experienced rapid demand growth (CAGR of 13%) over the same period. Against this backdrop, the company has focused on facial tissues while continuing to launch higher quality toilet tissue products (figure 1). We believed that the company’s valuation did not fully reflect its potential to deliver double-digit organic sales growth while maintaining a healthy margin, as it continued to position its business to benefit from this strong premiumisation trend.

Figure 2 - China’s tissue consumption volume mix
Figure 2 - China’s tissue consumption volume mix
Source: NBS, Morgan Stanley Research, as at June 2020. Smoothed line.


  • 1 Source: Citi Investment Research as of October 2019.

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested. As a large portion of the fund is invested in less developed countries, you should be prepared to accept significantly large fluctuations in the value of the fund. As this fund is invested in a particular country, you should be prepared to accept greater fluctuations in the value of the fund than for a fund with a broader investment mandate. The fund may invest in certain securities listed in China which can involve significant regulatory constraints that may affect the liquidity and/or the investment performance of the fund. The fund invests in a limited number of holdings and is less diversified. This may result in large fluctuations in the value of the fund.

Important information

  • This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.


    Data as at 31 May 2020, unless otherwise stated.


    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.


    For more information on our funds and the relevant risks, please refer to the share class-specific Key Investor Information Documents (available in local language), the Annual or Interim Reports , the Prospectus, and constituent documents, available from A summary of investor rights is available in English from The management company may terminate marketing arrangements. 


    This is not an invitation to subscribe for shares in the fund and is by way of information only, it should not be considered financial advice. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. Persons interested in acquiring the fund should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences. As with all investments, there are associated risks. This document is by way of information only. Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations. The fund is available only in jurisdictions where its promotion and sale is permitted. Not all share classes of this fund may be available for public sale in all jurisdictions and not all share classes are the same nor do they necessarily suit every investor. Fee structure and minimum investment levels may vary dependent on share class chosen. Please check the most recent version of the fund prospectus in relation to the criteria for the individual share classes and contact your local Invesco office for full details of the fund registration status in your jurisdiction. Please be advised that the information provided in this document is referring to Invesco China Focus Equity Fund Class A (accumulation - USD) exclusively. This fund is domiciled in Luxembourg.