If the international expansion of Japanese companies is any guide, Chinese companies still have significant potential left in the global market. That’s according to HSBC analysts. They found that for mainland China-listed companies, known as A shares, just 11.7% of their total revenue last year came from outside the country. The portion was an even lower 10.3% when looking just at the largest companies, tracked by the CSI 300 index. In contrast, 35.3% of revenue for companies in Japan’s Nikkei 225 came from overseas last year, Steven Sun, head of research at HSBC Qianhai Securities, and a team said in a report this month. Since the pandemic, Chinese companies have increasingly looked to expand abroad due to slowing growth at home. Electric cars and consumer products have stood out to investment analysts for their international potential. “We believe structural growth opportunities from consumer companies’ global expansion remain underappreciated by investors, especially in EM markets,” UBS Asia Pacific equity analyst Christine Peng and a team said in a report on June 12 about the China consumer sector. Companies to watch One of their buy-rated picks is Gongniu, a Shanghai-listed company that sells electrical products such as wall sockets, switches and lighting. The company said in its annual report that last year that it set up subsidiaries in Germany and Indonesia and recruited distributors in the Middle East and South America. Gongniu’s overseas operating revenue has only accounted for 2% or less of what it makes domestically. The company did not break out overseas revenue for the first quarter, but said overall revenue grew by 14% from a year ago to 3.8 billion yuan. When compared to Japanese companies, the contribution of overseas revenue to the total for Chinese businesses is low across industries. “Although some leading companies like BYD and CATL have made concrete steps to gain global market share, with the overseas revenue contribution reaching c30%, we believe this is likely to signal a good start rather than a ceiling,” the HSBC analysts said, noting the companies’ Japanese counterparts have grown overseas revenue to more than 70% of their business. The gap remains wide when looking at other sectors, such as electrical equipment (20.4% vs 53.8%), machinery (21.6% vs 53.5%) and pharmaceuticals (9.9% vs 34.6%), HSBC’s analysis found. Here are the firm’s China “going global” stock picks, all
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