Page 7 - DIY Investor Magazine - Issue 27

The registration-based IPO mechanism was launched last July on the STAR Board (the science and technology innovation board of the Shanghai Stock Exchange) and is now being employed on ChiNext. In these markets, listing criteria are also more flexible, and we believe this will encourage more tech and new economy companies to list on the A-share market.
Looking ahead, we believe further expansion of these reforms to the broader A-share markets would be positive for Chinese markets. We have already seen more IPOs of A-shares and Red Chip companies this year and there could be more to come given more flexible listing requirements and some interest from US companies
That said, as always, we do need to follow regulatory developments closely. Recently we have seen draft regulation in the fintech space that delayed the hotly-anticipated Ant IPO, plus there are some anti-trust rules brewing in the technology area.
We don’t sense that these will change the outlook significantly for the large technology companies, but developments certainly need to be monitored.
WHAT THEMES, SECTORS OR REGIONS STAND OUT AS OFFERING OPPORTUNITIES IN A POST COVID-19 WORLD?
Our focus is firmly on ‘New’ China. That means steering
the portfolio towards sectors that will grow their share of
the economy over time, particularly among the consumer- related, technology and healthcare sector. In many of these areas, Covid-19 has super-charged structural trends already underway in China.
E-commerce is a particularly compelling theme. Many consumer goods in China have real capacity for growth and we see a trend towards upgrading and buying premium brands.
Within financials, we are particularly interested in insurance. ‘Protection’ type life insurance is only lightly used and we believe demand will naturally rise with higher incomes.
Covid-19 could accelerate demand as people look at ways to protect themselves and their families from future crises. This would benefit areas such as health insurance.
SUSTAINABILITY IS BECOMING INCREASINGLY IMPORTANT FOR INVESTORS. IS IT POSSIBLE TO INVEST SUSTAINABLY IN CHINA? AND HOW IS THIS REFLECTED IN YOUR PORTFOLIO?
Chinese companies are improving their sustainability footprint all the time. Sustainable investing remains a core part of our investment process and we believe that high standards of corporate responsibility make good business sense.
It helps manage risks and it has the potential to enhance returns We integrate Environmental, Social and Governance (ESG) issues into our research and investment decision- making process.
We favour engaging with companies to improve their behaviour, rather than excluding companies from the portfolio.
This can bring long-term changes, adding value for companies, our investors and society.
Our recent ESG engagements have included areas such as supply chain sustainability and how companies can improve their reporting on sustainability issues.
Based on our internal ESG ratings, around three-quarters of the portfolio is currently invested in companies that rate highly from a sustainability perspective. While most of the remainder are not rated, this portion has been falling as our ESG research coverage expands.
WITHIN YOUR PORTFOLIO, WHERE DO YOU HAVE STRONGEST CONVICTION AND, IN CONTRAST, WHICH AREAS ARE YOU AVOIDING?
We judge the underlying value of companies through an assessment of their growth prospects, underlying competitive strengths and the quality of management teams.
Source: Bloomberg News as at 30.11.2020 Source: Fortune.com as at 19.10.20 Source: Financial Times as at 18.01.21
“OUR FOCUS IS FIRMLY ON ‘NEW’ CHINA. THAT MEANS STEERING THE PORTFOLIO TOWARDS SECTORS THAT WILL GROW THEIR SHARE OF THE ECONOMY OVER TIME.”
7 DIY Investor Magazine | Mar 2021