Many investors spend a lot of time poring over Chinese economic data and policymaker comments to gauge the health of what has become the world’s second largest economy and the best opportunities for future growth. But to get the true picture, our emerging equities team believes that the numbers and headlines are no substitute for company-by-company on the ground research.
At the time of the trip, companies were cautiously optimistic, they told us they have seen an increase in new orders since the start of the year, however, visibility was limited. Chinese economic conditions remain lacklustre however.
Textiles, machine tools, consumer electronics and other traditional industries are faring relatively better, while solar power and lithium battery sectors are lagging. Businesses with exposure to export industries told us they experienced strong demand in the first half, but that tariffs from both the US and Europe remain a concern for the future. To compensate for potential sanctions, companies are increasingly expanding overseas, particularly to other parts of Asia and to Mexico. By doing so they can try and avoid any potential sanctions on goods manufactured in China, as well as find new customers. For parts suppliers, it can also be to follow their existing Chinese customers who’ve already expanded.
Forecast for global humanoid robot shipments, thousand units
Source: Goldman Sachs Global Investment Research
Robot revolution
All these insights help inform our investment decisions – in this case, for example, speaking to the companies confirmed our caution on the short-term outlook for Chinese industrial firms and we have held off investing for now.
But our discussions have also flagged opportunities. One industry where we witnessed a lot of excitement was humanoid robots – machines which resemble our body shape and can do some of the same things as we can. An aging workforce and reluctance among the young to work in traditional manufacturing jobs is boosting demand.
Goldman Sachs estimates that the global market for humanoid robots could reach USD38 billion by 2035, with over 250,000 units shipped in 2030 – compared to only around 1,000 units shipped in 2023.
China is embracing this trend across the whole value chain. Companies like Xiaomi and UBtech are developing the robots, with the latter hoping to have their latest model in operation in factories within the next couple of years. Other firms are supplying parts for the robots. Meanwhile, Chinese manufacturers, such as electric car maker BYD, are open to the use of these humanoids in their production lines. The first phase is to carry out a single, highly repetitive task such as inspection, testing or materials handling. Phase two is for robots to work on multiple tasks and in phase three robots will have the ability to complete more complicated tasks. In the longer term, the robots could be used not just in factories but in service scenarios including companionship, wellness and elderly care. Interestingly, UBtech did talk of developing faces that look and move like humans for care/companionship scenarios - although this is still quite far off!
Copper boom
Advanced technology was also a key theme when we visited a Peruvian copper mine – a trip which helped us to better understand the entire copper value chain starting with the extraction process and finishing with the often-invisible daily use cases, such as inside mobile phones and electric cars. Site visits are always a good reminder about the advancements in automation which mining companies are making: instead of a stereotype of crowds of dusty-faced workers, we saw dozens of trucks slowly making their way up and down the mine ramps.
The visit confirmed our overall positive stance on copper’s structural fundamentals. On the supply side, there have been some constraints, with disruptions in mine operations and the long time needed to secure permits (up to five years in certain jurisdictions). At the same time, copper is exposed to multiple demand levers such as the clean energy transition and artificial intelligence. Data centres’ need for copper, for example, is not new, but this need is growing thanks to the development of data-intensive AI functions. If global datacentre power demand grows at a compound annual pace of 15 per cent, JP Morgan estimates that we would require 2.6 million tonnes of new copper supply by 2030.
Such trips allow us to learn things that you couldn’t learn just by meeting management teams on one of their business trips through London. It is one thing to hear about safety protocols until you must follow those or hear a company tell you why they are competitive on the cost curve compared with seeing what makes them so efficient on that front. Speaking to employees allows you to get some insight around execution on a day-by-day basis. At the mine we visited, there was a strong focus on safety and on the environment with over 70 per cent of the water used in operations recycled. Such initiatives are crucial in a world where there is ever greater scrutiny on industries’ environmental and social footprints, accompanied by tighter regulation.
From China to India, Peru and beyond, the people we meet on our EM equity investor trips are full of entrepreneurial energy. Getting to know them and their businesses not only enriches our view of the world but offers invaluable insights for maximising returns for our clients.
Dialling up demand
Copper is also a key component in mobile phones, which are becoming an essential part of life in emerging markets like India. On a visit to Udaipur – a relatively small city, by India’s standards, of some half a million in Rajasthan, in the northwest of the country – we noticed that all the chairs in the airport were equipped with mobile charging points. This isn’t something we are used to in London’s Heathrow, for example, but it is perhaps not that surprising in India, where mobile phones are now essential for everything from buying mangoes from an old school street vendor to ordering your groceries via an app. Catching up with the Chairperson of National Payments Corporation of India, we learnt that 80 per cent of India’s digital payments flow through UPI, a government-created pipe carrying 1 billion of transactions every day.
The key reason digital payments have taken off in India (and elsewhere in Asia) is that they do not require much underlying infrastructure; all you need is software like QR codes. That differs from the hardware-led payments infrastructure which is already in place in the West, leading to much slower uptake.
At Blinkit, a Zomato subsidiary, consumers order groceries via a mobile app; the gig workers then pick up the order from a dark store in a cheap-rent part of town, and deliver it on their bikes. We visited the warehouse store, spoke to the riders and saw their gig app to understand how it works seamlessly. While we were there, two-thirds of the orders were delivered under 15 minutes.
Across India, signs of an improving quality of life were visible in many places – be that packets of non-native blueberries in a small town corner shop, new express trains, or improved healthcare. The latter is much needed and here, too, technology can help. We witnessed how multiple ICUs can be managed from a centralised large hospital facility. Patient sensors provide real time data to the command centre so the specialists can remotely monitor each patient effectively. Tech upgrades are not cheap, of course, but well-targeted capital expenditure can not only ensure better treatments but also better revenues per patient. That prospect of improving returns over time makes a hospital business more exciting than other real estate heavy businesses like hotels or shopping malls.
From China to India, Peru and beyond, the people we meet on our EM equity investor trips are full of entrepreneurial energy. Getting to know these businesses not only enriches our view of the world but offers invaluable insights for maximising returns for our clients.
