Value unlock in China

Our Active Engagement approach leans on identifying hidden value in businesses and using the tool of Engagement to unlock and drive its greater market recognition. Following our recent Engagement trips to India, Korea, Taiwan, Vietnam and Indonesia, we turn our attention to China. 

The state of bilateral relations between US-China is an important consideration for investors. In addition to the troves of multinational businesses continuing to seek ways to decouple from China driven by the growing pessimism surrounding the current state of affairs, the changing regulatory landscape and extended lacklustre property cycle on the home front have resulted in the weak performance of the Chinese equities market in the last couple of years. 

In the short term, we believe there are multiple reasons to be constructive on the China equity market with a consumption recovery well under way, albeit patchy, and the government having multiple levers for potential stimulus (both fiscal and monetary). The implications of the geopolitical relationship between China and the US are harder to analyse. Whilst it is difficult for equity investors to predict any political development, taking an appropriate approach at the portfolio level can help better manage potential risk on this front. Focusing on businesses with internally developed intellectual property (IP) and primarily tailored to serving their large domestic market helps to mitigate risks related to any deterioration in bilateral relations. These opportunities often span across various sub-sectors that presents potential upside that was unimaginable just a few years ago. 

As we search for bright spots amidst uncertainties, we spent a week meeting companies on-site in Hong Kong and Shanghai in order to obtain a clearer understanding of the investment landscape since re-opening post pandemic. We had constructive in-depth discussions with five portfolio companies, and interacted with 20 other companies from various sectors, which included sportswear retail, semiconductors, renewable energy, software, industrial automation and healthcare.

This content should not be construed as advice for investment in any product or security mentioned. Examples of stocks are provided for general information only to demonstrate our investment philosophy. Observations and views of GIB AM may change at any time without notice. Information and opinions presented in this document have been obtained or derived from sources believed by GIB AM to be reliable, but GIB AM makes no representation of their accuracy or completeness.  GIB AM accepts no liability for loss arising from the use of this presentation. Moreover, any investment or service to which this content may relate will not be made available by GIB to retail customers.