On his recent visit to Zurich, Bin Shi, lead portfolio manager; answered questions from clients and colleagues on his outlook for the Chinese equity market and the fund’s strategy. After such a strong 2017, many investors want to know what they can expect in the near future. According to Bin Shi, there are good reasons to be confident. He refers to the fact that the market ins’t overheated and we are now back to the average valuation levels of the last 10 years: „With good earnings numbers this year, there is upside potential in the market, but we shouldn’t expect the same performance as last year.“
The Chinese economy is going through a transformation that has to meet a series of challenges. The most pressing of these challenges include rebalancing the economy from investment to consumer-led growth, addressing the high level of debt in the financial system, managing a rapidly ageing society and creating a cleaner environment. With changes come opportunities. Companies that are well positioned for these changes will do much better than their competitors. Bin Shi mentions the education sector as an example: „Education isn’t a new business, but there are significant changes in terms of how new technologies have an impact on the business. A lot of companies have introduced new technologies e.g. in producing their teaching material, in training their teachers or in tracking the performance of the students. That has changed the competitive landscape.“ TAL Education, one of the holdings in the fund, has adapted these changes very early and has now a competitive edge versus other players in the sector.
Analyzing the market situation and the key figures of a company is one thing, but there is also a lot of information to get from company visits. To meet the management and to have a look on the ground can provide important insights: „Just by looking at the financial statements, you won’t get the full picture. We think that it’s important to know more about the corporate culture. It helps finding answers to questions like „Is a company creating a friendly environment for its employees?“, „Are they very motivated“ or „Have they incentives to do more than they are assigned to?“ etc.“
When asked about the biggest risks for the Chinese equity market in the coming months, Bin Shi refers to the trade relations between China and the US: „We don’t expect a full-scale trade war, but if the tensions became more serious, there would be a clear impact on the markets. Another risk factor are US interest rates. If inflation in the US rose much faster than expected, it would also create pressure on the markets.“