Fund Management

Long-Term Prospects Positive For China – Fund Manager

Amanda Cheesley, Deputy Editor, London, 24 May 2022

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Alice Wang, portfolio manager at specialist fund manager Quaero Capital LLP, discusses the investment outlook for China.  

Despite the many challenges facing China, Alice Wang, portfolio manager at Quaero Capital LLP, is optimistic about the long-term future for the region.  

Outlining reasons for this in an exclusive interview with this publication, Wang highlighted that the Covid situation in China is now improving, with the amount of daily new cases declining from its peak of 27,000 in April to just 4,500 on 4 May. Although the country is not relaxing its zero-Covid policy any time soon, the supply chain situation is slowly improving too, and Beijing is managing the lockdown better, the firm added.

On top of this, Wang explained, China is not suffering from high inflation rates like many other countries. Due to its zero-Covid policy and low demand, China’s inflation rate currently stands at 2.1 per cent, she said. The country is also easing interest rates whilst others are increasing them, she added.    

The comments come at a difficult time for the world's second-biggest economy. Strict zero-covid policies in a number of cities, coupled with fissures in the real estate market, a government clampdown last year on certain tech sectors, and trade frictions with the West, have combined to put Chinese equities, for example, under a cloud. 

China Fund     
Wang manages Quaero’s Luxembourg-based China Fund which is a blended, growth-bias fund which aims to produce long-term capital growth by mainly investing in Chinese A-shares, H-shares and ADRs. Semiconductors, pharmaceuticals and clean energy are among the sectors it invests in.

Although the fund underperformed recently, Wang said that they re-entered two internet firms, Meituan and JD, which have deomonstrated resilience amidst the zero-covid headwinds. The biggest detractors in the portfolio were the clean tech and semiconductor exposures, which are overweight relative to the benchmark, the firm said.

Reasons behind this were the recent macroeconomic situation, including supply chain disruption, slowing consumer demand, and downcycle concerns which resulted in the global semi sell-off with the PHLX Semiconductor Index down by 14.9 per cent in March, the firm explained. Silergy was the main drag on performance in April (down 20.8 per cent) due to the mix of global semi sell-off and the lack of short-term catalyst, it added. It nevertheless remains invested in it partly because Silergy has doubled its revenue every two to four years since its IPO in 2013 and because it can easily outpace the industry growth. The firm, which hopes that April will represent a bottom for the economy, said that it has never seen so much bearishness on the Chinese market.

Bamboo Fund
Wang also manages Quaero’s Bamboo Fund, a long-only equity fund focusing on Greater China, India and ASEAN markets, which outperformed the index in 2020 and 2021.

In April this year, the Chinese internet firms were the outperformers in the portfolio. JD and Meituan were up 13 per cent and 10 per cent respectively, with a total weighting of 8 per cent of the portfolio, the firm said. The fund's Chinese exposure (40 per cent of the portfolio) was only down 4 per cent in April, outperforming the broader Chinese market as well as the Asia Pacific ex-Japan index as a whole.

Wang highlighted the benefits of investing in TSMC too, saying that it is the most valuable company in Asia. “It is one large cap that I have never sold,” she stressed.

The bulk of the fund’s underperformance came from its semiconductor positions in Taiwan (25 per cent of the portfolio), which were down 15.6 per cent, and its sole position in Korea (7 per cent of the portfolio), which was down 21 per cent.

Wrapping up, Wang said she remains optimistic about the long-term prospects for the Chinese market, despite these challenges.

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