From the Beijing Winter Olympics, a driving force for Chinese sportswear?

From the Beijing Winter Olympics, a driving force for Chinese sportswear?

There is an investment opportunity in thechinese sportswear and the starting point, explains Marco Mencinisenior portfolio manager Plenisfer Inversiones Sgrcomes indirectly from Winter Olympic Games happening in the land of the dragon. “For the Chinese government I Olympic Games are clearly a showcase and also drop at a particular time that sees the Porcelain closed to the rest of the world for almost two years, but above all they are an event with a high symbolic value because the theme of ‘healthier lifestyle‘it is considered strategic by government authorities that promote sports activity in all its forms’.

A promotion that has, among its direct consequences, a strong push for the chinese sportsweara sector that Plenisfer considers to be a rare combination of three elements: the high growth, in the last five years the sportswear sector has grown at a rate of 14% per year; over there large size of the domestic market and the fast pace of consolidation of the sector “There is a penetration of sport business fractional compared to Western standards and there is a very clear indication from the authorities about the level of participation in sports activities and we know well that in China, when the government sets targets, they rarely miss.”

Marco Mencini, Senior Portfolio Manager at Plenisfer Investments Sgr

This growth of the domestic market is accompanied by a change in the competitive position of Chinese companies. “We are seeing a change. China has been for decades, not only when it comes to sportswear, we think of the luxury industryland of conquest western brands, considered by the Chinese as a status symbol of achieved well-being. Today, Chinese companies are moving from being pure wholesale manufacturers for Western brands to companies capable of developing products with Western quality standards, including attention to sustainability, and their brands are beginning to be recognized, same Asian consumers, the Chinese. in particular, they seem to respond very positively.”

It is no coincidence, it is emphasized, that big brands such as Nike, Adidas or Puma have marked 2022 as a year of transition, complicated, while the Chinese local companies have growth rates which are double, triple compared to those of Western societies, until the recent past exactly the opposite happened. “There is also the cultural argument, these local brands have shown, for obvious reasons, a greater attention and familiarity with the cultural context and the strictly Eastern symbology, while a product of the well-known Western brands is objectively a global product, “not It has references to the Asian world”.

The sportswear market (values ​​in billions of Chinese renminbi)
CAGR = annual growth rate; Source: Plenisfer Investments Sgr

Another element that plays in favor is represented almost paradoxically by the Trade confrontation between the United States and China. “We cannot put the sportswear sector on the same level as the technology sector, we are not talking about secrecy, information, strategic aspects, but we are always in a field where a trade war is being waged,” explains Mencini, recalling the boycott . He uses products that use cotton produced in China’s western regions and some senators’ proposal to introduce a ban on American athletes sponsoring Chinese footwear or apparel. “As a result of this conflict, the Chinese have developed a very strong nationalist pridedriven very clearly by this administration: It’s a nation that now feels second to none and the Chinese no longer need to use a Western product to feel important.”

At Plenisfer, therefore, they remain constructive on China and on resumption of economic growth starting next quarter, despite the fact that the country is going through a complex stage, characterized by radical reforms that have generated strong economic impacts in some sectors. “We have to accept the fact that China is clearly in the middle of a transition,” Mencini warns. After the tumultuous growth of the last 20 years driven mainly by investments, the declared objective is growth from a mature economy, based on consumption and production of added value and within an economy that deliberately grows less, the sector of sportswear is an example of the structural opportunities, destined to continue throughout the years, that this country offers. “This is how investing in China remains extremely attractive today, also because valuations, after falling last year, are more favorable than Western markets, I am thinking of the US in particular.”