In a world riddled with low yields and liquidity concerns, Chinese assets provide a chance for alpha as its regulators open the nation’s previously closed capital account and securities markets.
The multi-million yuan question is: how do investors at home and overseas look to extract value and capitalise on the world’s second-largest economy’s transition?
An inconvenient truth is that China’s capital markets are infantile. The Shanghai and Shenzhen stock exchanges were only set up in 1990. But that is the opportunity, as a nation of 1.4 billion people shift their bank savings into real estate and securities.
What hasn’t escaped the world’s notice is the volatility of the equity market, which is still 80% owned by restless retail investors. The CSI300 Index soared 37% in the first five months this year, only to peak in early June and plummet 32% in the next four weeks, despite a multi-pronged government campaign to support the bull-run.
That makes it crucial to identify the best companies, ones that should stand out even as the nation’s economic growth slows. China’s stock market direction may be unduly influenced by policymaking, but like any market it is still comprised of companies working hard to provide goods and services that create value – and earnings.
To identify these and stick with them over the long haul requires professional help.
AsianInvestor set out to identify the top 10 portfolio managers in China, those with star quality and a sprinkling of magic.
We based our choices on a weighted set of criteria: long-term track record, market experience and applicability of strategy for a changing China. What unites them is an ability to find value, typically in sectors that will drive China’s future growth.
Certainly recent market interventions by Chinese authorities raise questions over what it means to be a consistent outperformer in a market underpinned by the government.
But it is AsianInvestor’s contention that there exist managers whose portfolios will perform best in the long term. Now is the time for these experts to shine.
When the CSI300 index peaked at 5,380 points on June 9 this year, 14 out of 1,146 actively managed equity and balanced funds had a return above 150%. By August 21 only six funds had returns over 80%, against 1.58% for the CSI300.
Of course, the market was overvalued. The average price-earnings (P/E) ratio for constituents of the Shenzhen Stock Exchange’s main board hit 43 times on June 12, and China’s Nasdaq-styled ChiNext index stood at 146 times on June 3.
That screamed “bubble”, but our top managers have been able to retain their conviction in stocks through the volatility.
In the public market arena we have identified three managers who have generated consistent returns over five years. These managers take a longer-term approach, have star appeal and are able to attract big flows.
This year’s rollercoaster of surges, corrections and interventions have dented absolute numbers. But this encapsulates the volatility of an emerging market. It’s not for the faint-hearted.
1. Jiang Jianwei, fund manager, Axa-SPDB Investment Managers
As a 36-year-old fund manager, Jiang Jianwei has been able to forge a stable career in an industry renowned for high turnover.
He began as an equity analyst after graduation from Shanghai University of Finance and Economics, before joining the joint venture between Axa Investment Managers and Shanghai Pudong Development Bank in 2007 as a sector analyst. He become a fund manager in 2010, and now runs three funds with a combined Rmb12.9 billion.
Jiang favours companies that he sees driving China’s future economic development, from sectors such as the internet, health care and technology, media and telecommunications (TMT). Hot sectors, but important drivers.
“I am a growth-biased investor,” he said. “The companies I invest in have either delivered high growth in the past two years or offer an attractive, low valuation.” He declined to elaborate when pressed for details.
His Value and Growth fund ranked in the top 10 in annualised terms among equity and multi-asset funds peers over three and five years. Its annualised five-year return was 21% as at end-July, by Morningstar data. It has recorded just one negative year in the past five, -25% in 2011, when China’s equity market sank 30% over the year.
But Jiang sees opportunities. “Companies such as Alibaba and Jingdong have achieved high growth amid the backdrop of slowing economic growth,” he advised.
“Investors should take a long-term view of China’s A-share market. It is no longer a place for making quick money. Investors cannot generate good returns in that way.”