On the ground in China, AB Equity's Research Trip Day 1

Our analysts are always traveling around in China.

We visit company factories, test firsthand new consumer products and services and of course speak with management.  But once a year, our entire research team gets together to visit companies in a couple of cities in China.  Part research, part team building, these grassroots research trips play an important role in our research process.  After all, there is no better way to understand the companies and their operating trends than actually walking the floors of factories and shopping malls.

There is no shortage of controversies when it comes to investing in Chinese stocks today.  It seems like a long time ago now, but the first quarter this year the market was largely defined by China’s “DeepSeek moment”, with investor attentions squarely focused on thematic names in the AI and humanoid robot industries.  In Q1, the Chinese consumers were also showing initial signs of bottoming, with consumer confidence finally bouncing back after three years of property-led downturn.  But China was then hit hard by US tariffs at the beginning of April, only to see that mostly reversed just a few weeks later.  Despite all these, over the last 1-year MSCI China All Shares (capturing both offshore Chinese stocks and the domestic A-shares) has outperformed the S&P by about 1%, as of yesterday, in dollar terms.  Most of that performance came this year, despite the tariff-related headwinds.  MSCI China All Shares returned 9.8% year-to-last Friday, outperforming the S&P by about 8% in dollar terms.

That’s why we begin our trip this year in Shenzhen, the southern metropolis just across the border from Hong Kong.  From its humble beginning as China’s economic experiment, today Shenzhen is the third largest city in China both in terms of population and also the size of its GDP.  It is also home to many of China’s leading technology companies, particularly those in tech hardware assembly, software development and of course EV supply chain.  There is no better place to take stock of China’s tech innovations, as well as the damages to companies and consumers from the American tariffs.

When you do the grassroots China research trip for the 15th year as a team, invariably there are a number of traditions that’s been developed over the years.  For one, we always mark the beginning of the trip with a nice team dinner, to exchange the latest research views but also to catch up as friends.

One single observation doesn't make a trend, especially on a Monday evening.  But we can’t help but notice that we seemed to be the only customer in the restaurant, which is relatively more formal and therefore higher on the price range.

Meanwhile, next door in the Link REIT operated shopping mall, the more mass-market bubble tea shops, cafes and family-oriented restaurants seemed to do much better in terms of traffic.  Indeed, the food court attached to the Hema supermarket was positively bustling.

Why were we in a supermarket before the trip even kicked off?  If we bought our bottle of Wuliangye baijiu (and of course one needed baijiu – or Chinese white liquor – to kick off any formal occasions…) at the restaurant, it would’ve cost RMB 1,500 more than the supermarket.   Perhaps we are now thinking just like the rest of the Chinese consumers, who have been downshifting their spending patterns over the last few years.

Speaking of China trip traditions, the team always finds an occasion to grab ice cream at a Dairy Queen at some point during the trip.  It began 15 years ago at the bank of Yangtze River in the city of Chongqing.  I am glad to report that we knock that item off our to-do list on the very first night this year!

Best,
John Lin
Chief Investment Officer – China Equities
AllianceBernstein

Click here to read about Day 2.

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