If you're looking to diversify your portfolio with international shares, then you might want to take a look at the three shares listed below.
Jacob Mitchell, the Chief Investment Officer of Antipodes Partners, which is the manager of Antipodes Global Investment Company Ltd (ASX: APL), has been running the rule over the Chinese share market and has found a few gems which he believes are undervalued.
Yum China
The first share that Antipodes rates highly is Yum China. It is the largest operator of quick service restaurants in China, with a number of popular brands including KFC and Pizza Hut.
Mr Mitchell believes the company offers a compelling opportunity for investors, particularly given its long runway for growth.
He explained: "Chain restaurant penetration in China is only 5% versus the US at 65%, so there is a long runway for growth and a major opportunity to take market share. With a sustainable growth rate approaching 10%, we believe the company is cheap on a normalised P/E of about 22x."
Another reason to like Yum China is its lead over the competition. This is in respect to its delivery network and its digital footprint.
The chief investment officer commented: "… it has built a big digital distribution platform, with 180 million digital users. It is also receiving about 30-40% of all online orders through its own app, which is a significant lead versus other online players."
Alibaba
The second share which Antipodes believes is undervalued is ecommerce giant Alibaba.
The fund manager notes that Alibaba is 14x the size of the largest offline player and hugely dominant across all retail. This is very different to the U.S. market where Amazon's retail business is only half the size of Walmart.
Despite Alibaba's size, Antipodes sees plenty of opportunities to grow in this post-COVID-19 world.
Mr Mitchell explained: "Organised channels for fresh grocery sales are hugely under-developed in China compared to those in the US, where established super/hypermarkets account for more than 90% of sales."
"In China, wet markets – the Asian equivalent of farmers markets – still account for more than 70% of fresh grocery. Given the COVID-19 outbreak likely originated in a wet market, China will now permanently modernise its fresh food supply chain. Alibaba is deploying multiple strategies to attack this opportunity," he added.
Alibaba is currently priced on a CY21 price to earnings ratio of 20x, which Antipodes believes is an attractive multiple relative to its forward growth profile. Especially when compared to other large retail and internet platform peers globally.
Ping An
A final Chinese share which Antipodes believes is undervalued is Ping An Insurance. It is a life insurance powerhouse and the leader in digital distribution.
Mitchell notes: "Life insurance in the largely underpenetrated market is the safety net for Ping An, which is an innovator of protection products. It also has industry leading tech and the fact it holds data on +750m Chinese residents leads to competitive advantages – including the effective cross-selling of insurance products."
And despite the company growing its earnings at 20% per annum, with a return on capital employed of 30%, its shares are changing hands at just 10x earnings today. Another positive is that the company holds an investment portfolio worth 15% of its market capitalisation.
How can you invest in these shares?
If you don't have direct access to the Chinese market, don't worry.
Antipodes has an exchange traded fund (ETF) which give you exposure to a wide range of quality global businesses, including the three listed above. That ETF is the Antipodes Global Shares ETF (ASX: AGX1).
