Many investors worry about overcapacity in various sectors in China, such as property, cement, steel, and several others. This leads to bouts of greed and fear within Chinese equities with risk-on and risk-off periods that continue to play out with increasingly shorter cycles. However, Driehaus research has uncovered an exciting area of underinvestment within China that may provide sustainable investment opportunities for the next several years: Industrial automation in China.
Industrial robot density by country, 2011 (per 10,000 employees)
Source: IFR Statistical Department, Barclays Research
China currently faces increasing labor costs, a rising currency, slowing demographics, and limited growth in lower-end manufacturing markets. In this environment, we believe Chinese companies have no choice but to invest in automation for their factories. We have identified several companies that are leading that charge with innovative domestic automation products and capturing increasing market share despite overall worries around PMI, fixed-asset investment, and a macro slowdown.
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