MIKE SELL

By MIKE SELL

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Investment notes from Greater China – October 2019

Mike Sell, Alquity’s Head of Asian Investments and Kieron Kader, Asia Investment Analyst spent 11 days in Greater China visiting 18 companies in Hong Kong and 12 across Shenzhen, Hangzhou, Nanjing and Shanghai.
Mike and Kieron visited existing holdings to reassess the outlook for corporate earnings. They also visited competitors to understand the overall environment, as well as brand new investment ideas. This was a valuable opportunity to discuss the effects of the trade war on the Chinese domestic economy, and reactions to the stimulus packages issued by the Chinese government.

 

CONCLUDING THOUGHTS

The main conclusion to draw from our trip is that there are areas of brightness – particularly in our domestic growth focused sectors.
Our long-standing view that the Chinese domestic economy continues to perform well has been confirmed by the key industries. However, some corporates (particularly in exporting industries) expressed uncertainty for the near term, but also mentioned that government stimulus may provide support (e.g. further reserve requirement rate cuts, tax cuts, as well as industry-specific policy). Selective domestic growth driven sectors that we invest in (property, beer etc.) showed confidence for the short and medium term. We have also identified a number of high quality domestic-focused companies that are worthy of further due diligence.
Whilst overall growth is reasonably healthy, some areas are challenged and remain undesirable. However, there are areas of outstanding growth and we remain positive. Combined with the fact that valuations are attractive, we maintain a substantial weighting to the market.

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