Plenty of value in the Chinese market as the country reopens from Covid isolation: Liu
Tribeca fund manager Jun Bei Liu has a message for the Sohn Hearts & Minds conference: There are cheap, high-quality companies ripe for investors.
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An increasing intransigence from authorities in Beijing toward private enterprise – and harsh pandemic restrictions – might be keeping some investors away, but the same factors are creating good opportunities in Chinese stocks.
That’s the view of Tribeca fund manager Jun Bei Liu, the Shanghai-born investor who will be presenting her stock pick for the year at this month’s Sohn Hearts & Minds conference in Hobart. At past events, Ms Liu has tipped stocks whose fortunes have been linked to the Chinese economy, particularly the country’s growing middle class – including Treasury Wine, A2 Milk and New York-listed New Oriental Education.
While much has changed in China since her last appearance two years ago, Ms Liu believes a resurgence in spending and travel in the West is an indication of what will happen once Chinese authorities open their country next year.
“Right now, we see some deep value opportunities,” she said in an interview with The Australian.
“We have seen a tremendous fall in the Asian sharemarkets and in companies exposed to the Chinese economy. The Covid-zero policy is really suppressing earnings now. But we can see a lot of cheap, high-quality companies.”
She expects the Chinese economy to start opening from around the time of the Chinese New Year, and more restrictions easing by late 2023.
“The Chinese consumer has been locked down for a long time,” she said. “If you look at China, there are more than a billion people and more who want to get out and spend their money on services – not just goods but also services and experiences. Given where share prices are now, and where earnings are going, we certainly see opportunity.
“The road map we have seen in other markets will be replicated,” she added. “Right now, there are very low expectations on earnings (for Chinese companies) but we know they will come back because the consumer is going to be a big focus for the economy.”
But investing in China is not for the faint hearted, Ms Liu said, or those who do not follow the shifts in government policies.
“In investing across Asia, you have to be very selective. You have to be very mindful of what policies are coming,” Ms Liu, who manages some $1.1bn, said.
“You don’t want to stand in front of a policy change. You don’t want to be in disharmony with the socialist objective. It does require a lot of understanding and experience in the market.”
Ms Liu’s interest in Chinese shares dates back to the 1990s when her father, an engineer who worked for a Chinese state-owned enterprise, began investing in the newly created local sharemarket, then a wild west largely driven by retail investors.
She recalls having his sharemarket charts plastered around the walls of their home and her father discussing the implications of the markets moves.
“We didn’t have a computer. My father just started charting the share prices. He had sheets on the walls which went all around my room, around his room, down the stairs and into the living room,” Ms Liu said.
“Every morning he would look at the charts and say ‘if the market goes up, it will do this, if it goes down it will do that’. He was constantly measuring it.”
While she did not follow his approach of charting, Ms Liu says she learned one thing from watching her father invest – the value of diversification. “He worked out if a share falls in one sector, there were other sectors which will do better,” she said.
Ms Liu later become involved with the local market by working for newsletter writer Ian Huntley, who later sold his business to Morningstar where she started her career as an analyst in 2002.
She joined Tribeca in 2005 and was working on plans to for it to expand its investments in Asia when she was asked to take over the Tribeca Alpha Plus Fund.
When she took it over in 2019, the fund had assets of around $340m. So far, the Alpha Plus Fund has only invests in Australian shares. But Ms Liu said the company was planning to launch a fund with more focus on Asia – something which has been a long-time “dream” of hers.
She said that Asian shares were down because of the weakness of the Chinese economy, which dominates the region, and the strength of the US dollar. The strong US dollar is creating inflationary pressure in Asia and putting pressure on governments because their borrowings have all mainly been in the US dollars.
But Ms Liu argues that markets have already factored in the big rise in US rates which has happened this year and has some way to go. “The US dollar is already pricing in these lofty expectations,” she said, adding a combination of an easing in the value of the US dollar and a slow recovery of the Chinese economy will improve the outlook next year.
Ms Liu said investors have to be prepared to make mistakes to really learn. “If you don’t make mistakes, you are not taking a risk. You tend to sit on the fence too much. You don’t get it wrong, but you don’t get it right and you don’t learn anything,” she said.
Ms Liu, who is lead portfolio manager for the $1.1bn Tribeca Alpha Plus Fund, will be giving her stock tip when she appears at her fourth Sohn Hearts & Minds Investment Leaders Conference on November 18.
It is being held for the first time in Hobart.
In the past, Ms Liu has tipped stocks whose fortunes have been linked to the Chinese economy, particularly the country’s growing middle class – including Treasury Wine Estates, A2 Milk and New York Stock Exchange-listed New Oriental Education.
Although much has changed in China since her last appearance (online) two years ago, Ms Liu believes the economic road which has been taken across Western economies, where consumers returned to spending and travel once lockdowns ended, is an indication of the upturn which will happen in China next year once the country opens up and its billion plus consumers are back spending.
“Right now, we see some deep value opportunities (in the Chinese market),” she says in an interview with The Australian ahead of her appearance at the Sohn conference.
“We have seen a tremendous fall in the Asian sharemarkets and in companies exposed to the Chinese economy.
“The Covid zero policy is really suppressing earnings now. But we can see a lot of cheap, high-quality companies.”
Ms Liu believes the Chinese economy is expected to start opening up from around Chinese New Year next year, with more restrictions easing in the middle to late 2023.
“The Chinese consumer has been locked down for a long time,” she says.
“If you look at China, there are more than a billion people and more who want to get out and spend their money on services — not just goods but also services and experiences. Given where share prices are now, and where earnings are going, we certainly see opportunity.
“The road map we have seen in other markets will be replicated,” she added. “Right now, there are very low expectations on earnings (for Chinese companies) but we know they will come back because the Chinese consumer is going to be a big focus for the economy.”
But Ms Liu agrees that investing in Chinese stocks is not for the faint hearted or those who do not follow the shifts in government policies.
“In investing across Asia, you have to be very selective. You have to be very mindful of what policies are coming.
“You don’t want to stand in front of a policy change. You don’t want to be in disharmony with the socialist objective. It does require a lot of understanding and experience in the market.”
Ms Liu’s interest in Chinese shares dates back to the 1990s when her father, a “self-taught engineer” who worked for a Chinese state owned enterprise, began investing in the newly created Chinese sharemarket, then a wild west like market, largely driven by retail investors.
She recalls having his sharemarket charts plastered around the walls of their home and her father constantly discussing the implications of the markets going up and down.
“We didn’t have a computer. My father just started charting the share prices. He had sheets on the walls which went all around my room, around his room, down the stairs and into the living room.
“Every morning he would look at the charts and say ‘If the market goes up, it will do this, if it goes down it will do that’. He was constantly measuring it.”
While she did not follow his approach of charting, Ms Liu says she learned one thing from watching her father invest: the value of diversification.
“He worked out if a share falls in one sector, there were other sectors which will do better.”
Ms Liu moved to Australia at the age of 16 following her mother, who had come as a student following the more open door policies of the Hawke government to Chinese migrants.
She completed a Bachelor of Commerce, Economics and Finance at the University of New South Wales, becoming involved with the Australian market by working with newsletter writer Ian Huntley, who later sold his business to Morningstar where she started her career as an analyst in 2002.
She joined Tribeca in 2005 and was working on plans to for it to expand its investments in Asia when she was asked to take over the Tribeca Alpha Plus Fund.
When she took it over in 2019, the fund had assets of around $340m. Under her leadership it has grown in size to more than $1.1bn.
At the moment the Alpha Plus Fund only invests in Australian shares.
But Ms Liu says the company is planning to launch a fund with more focus on Asia — something which has been a long-time “dream” of hers.
She believes that Asian shares are down right now because of the weakness of the Chinese economy, which dominates the region, and the strength of the US dollar.
The strong US dollar is creating inflationary pressure in Asia and putting pressure on governments because their borrowings have all mainly been in the US dollars.
But Ms Liu argues that markets have already factored in the big rise in US rates which has happened this year and has some way to go.
“The US dollar is already pricing in these lofty expectations,” she says.
She believes that a combination of an easing in the value of the US dollar and a slow recovery of the Chinese economy will improve the outlook in Asia next year.
Ms Liu says her investing approach is to stick with companies she knows or can understand.
One of her earliest lessons was tipping what was then ASX-listed Strathfield Car Radio as a buy, ahead of the newly listed JB Hi-Fi.
JB Hi-Fi’s then chief executive Richard Murray told her to go out and look at the Strathfield Car Radio stores.
“So I visited the stores and could see the company was a dinosaur. It was all about selling car radios.”
JB Hi-Fi was the business that survived and thrived.
“That’s why I tend to get attracted to businesses that I can understand, whether it is a consumer business or a technology company. I tend to stick with things that I can touch and feel and experience.”
Ms Liu argues that people have to be prepared to make mistakes to really learn how to invest.
“If you don’t make mistakes, you are not taking a risk. You tend to sit on the fence too much. You don’t get it wrong, but you don’t get it right and you don’t learn anything.”
The Sohn Hearts & Minds Investment Leaders Conference is an annual one-day event which brings the investment community together in support of Australian medical research.
It is being held on Friday 18 November with support from the Tasmanian government.
To buy tickets and get more information see www.sohnheartsandminds.com.au
Originally published as Plenty of value in the Chinese market as the country reopens from Covid isolation: Liu
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