First State's Asia Pacific and global emerging markets team, led by Angus Tulloch, says the China consumer demand story has been "flogged to death."
The team has had a bias towards consumer stocks for a number of years as part of the defensive positioning of its Asia Pacific and global emerging markets portfolios.
However, it is beginning to cut exposure to consumer-orientated stocks on valuation grounds.
Alistair Thompson, co-manager of the £4.4bn Asia Pacific Leaders fund, says: "If any investment story has been flogged to death it is Chinese consumption.
"These stocks have been trading on excessive valuations and we now have very little exposure there."
The fund has just 6.7% invested in China compared to the benchmark's 19.7%.
Although Thompson is particularly concerned about China, Glen Finegan, co-manager of the £600m Global Emerging Markets fund, says prices are too high across most developing countries.
"It is clear investors globally are worried about developed markets and have started to look for what they perceive as defensive growth. This has made emerging market consumer stocks more fashionable and quite a number are starting to look overvalued," he says.
"We are getting a little bit worried about the popularity of some of the consumer stocks we have held for a long time."
In contrast, First State's GEM team is increasing investment in telecoms, recently adding Poland's TPSA.
"Telecom sector valuations are now more attractive. The sector has been out of favour for a while because emerging market companies have suffered the same as developed market telecoms as regulators have been reducing the amount of profit they can make. However, they remain very cash generative," he says.
"In TPSA we have bought a company with a very small market cap, generating a lot of cash, which looks good to us on a three to five-year view."
Meanwhile Thompson has taken banking exposure in Asia Pacific Leaders to 9.5% from 5% with the addition of Singapore's DBS Bank. Its one other bank stock is China's OCBC.
"We do not have a lot of exposure to banks because we look to invest in companies which have a maximum loan to equity leverage of 10 times," he says.
