Fund manager's diary

Fund Strategy - 18 Jun 2012 | By Jian Shi Cortesi

Saturday Arrive in Beijing with the aim of assessing whether it is a good time to increase exposure to China and if so, where to invest. Consumption growth is a key investment theme in China. I visit two department stores, a hypermarket and a shopping centre that sells low-price fashion items. With the economic slowdown, there seemed to be a divergence among retailer performance: some high-end luxury brands and low-end brands (both domestic and international) are still doing well. However, stores with weak brand identity are experiencing poor footfall, which convinces me that investing in leading companies with strong brands is a good strategy to capitalise on China’s consumption growth.



Sunday Meet friends that I have known for many years. They work in banking, economic research, accounting, IT and the public sector. They are not too worried about the economic outlook and have much confidence in the government’s economic policy. In addition, they expect a smooth leadership transition.



Monday Today is the kick-off of the CLSA China conference. It offers a rich line-up of analyst research and corporate meetings. My focus is companies in construction and materials, as many of these stocks have fallen significantly owing to a slowdown of infrastructure projects. While the corporations sound cautious, I leave the meetings feeling optimistic. Although this area will be less important to China’s growth than it was, certain stocks could see a strong rebound as the government speeds up infrastructure projects. (Diary continues below)

Tuesday I spend the day meeting Chinese financial companies. The financial sector has been out of favour owing to concerns about the banking and property sectors. However, the financial sector will be one of the main beneficiaries of income growth in China and some of these companies could be attractive investments, especially given the low valuations. Companies I meet are committed to growth. I leave the meetings with more confidence in the banks and insurance companies I already hold in my portfolio, though no new investment ideas catch my eye.

Wednesday My focus returns to the consumer market. Swiss watches and high-end jewellery are still an interesting story. Although companies have seen sales growth slowing down, the long-term potential in China is still huge. In the fashion retail field, picking the winner is more challenging, as competition has increased from both domestic and international brands.

Thursday Spend the day researching the property sector. Developers are cautious. At the same time, they are optimistic about sales volume recovery with more price promotions. In terms of buyers, people with or without home ownership say property prices in tier 1 and 2 cities in China are too high. But underlying demand seems strong.

Friday Visit brokerage houses. When I was here last October, I encountered deep pessimism. The situation has not improved much since. Investors have been held back by the view that stocks are risky, despite valuations not far off historical lows. Instead, investors are turning to wealth management products and private lending for higher yields. This reminds me of a Warren Buffett phrase: “Be greedy when other people are fearful and fearful when other people are greedy.” Based on that logic, it is time to be wary of private lending and to get excited about Chinese stocks.

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