China Fund News reporter Green
Sophie Earnshaw, one of the fund managers of The Parky China Growth Trust, recently introduced her views on the Chinese market at an investor exchange event. She believes that despite many changes in industries such as The Internet in China in 2021, China remains one of the most important asset classes in the global portfolio. China is expected to have a number of global leaders in many fields such as new energy.
Headquartered in Edinburgh, Berkey has a recent management of more than US$466.8 billion, equivalent to about 3 trillion yuan. It is a world-renowned ultra-long-term investor and a well-known technology growth stock catcher. After years of running with Tesla, it earned more than 100 billion yuan from it. It is also an early investor in Chinese companies such as Alibaba, Meituan and NIO.
The investment in China is as high as 440 billion yuan
Sophie Earnshaw introduced that Burkey currently invests $70 billion in Chinese companies, equivalent to more than 440 billion yuan. In the past 10 years, Chinese companies invested by Baiji, including Ali and Tencent, have invested in ByteDance and CATL in the past 5 years, and have achieved good returns. Now, it's looking for the next generation of super-growth stocks. Berke has about 60 investment research personnel focusing on Chinese companies, including investment in China through a global strategy and investment in China through a Chinese strategy.
Burke's global strategic product "Scottish Mortgage Trust" top ten heavy stocks
Source: Burkee official website Scottish mortgage trusts have a new size of 18.8 billion pounds, and the top ten heavy stocks include Chinese companies such as Tencent, Meituan and NIO.
Burke pointed out that the golden rule for investing in China is to align with policy direction. Sophie Earnshaw began by saying that Chinese assets could be the most important asset class in the global investor portfolio in the coming decades.
"Although there are some concerns about the current media coverage of China, if you pay too much attention to these, you will miss out on big opportunities." She said.
Why focus on China's big opportunities? Sophie Earnshaw explains: First, the conversion of old and new energy will bring huge investment opportunities. China has a strong incentive to convert old and new energy, and second, China's private enterprises are the most innovative and entrepreneurial groups in the world. However, China's stock market, as a market dominated by retail investors, is very volatile. In a short period of time, it is normal for stocks to fall by 20%, 30% or even 40%. Therefore, it is best to invest in China for at least 5 years. Because, only in such a long time frame, the opportunity will be realized on the stock price.
In addition, she mentioned that China's economic status does not match its weight in international indices. China accounts for 20% of global GDP, but only has a 4% weight in the MSCI Global Index. "Apple alone accounts for 3.5 percent of the weight in the same index," she says, arguing that China's undervaluation by global investors speaks volumes.
The "China Growth Trust" managed by Berkey is among the top ten positions by the end of 2021. Source: Berger's official website
Numerous companies are expected to become global leaders
Why are many Chinese companies poised to become global leaders?
Sophie Earnshaw cites three reasons.
First, scale matters. Over the next 10 years, the number of middle-income earners in China will grow from 400 million to 700 million. By 2040, this figure is more likely to reach 800 million. Speaking of "consumption upgrading", one of the main investment lines that foreign investors are very concerned about, Sophie Earnshaw believes that Generation Z (people born in 1997-2012) may be the main driving force for consumption upgrading. In her observation, Gen Z is more culturally confident and prefers local brands. For example, they prefer Li Ning to Nike. They may prefer genki forests to Coca-Cola. They may prefer Pleia to L'Oréal.
Second, the population density of the city determines the growth space of many enterprises. China has 160 cities with a population of more than 1 million. Meituan-Dianping delivers 30 million meals a day, and within five years, that number could rise to 100 million. Grub Hub, the most popular company of its kind in the United States, delivers 750,000 meals a day.
Finally, China is building a number of new infrastructure projects to foster innovation. This infrastructure includes 5G networks, cloud computing, electric vehicle manufacturing, and charging systems. A number of new formats will be born on this basis, including new retail, online medical and health services, etc. China will be the world's largest market for electric vehicles, and China may become the center of the electric vehicle industry chain in the next 10 years. "Companies such as Huichuan Technology and Enjie Co., Ltd. will become the leaders of the global market." Because overseas investors have limited knowledge of China, she said that many companies in China are expected to become global leaders, and global investors have never heard of it.
Talking about the new regulatory policies that will appear in some industries in 2021, Sophie Earnshaw believes that China's regulatory policies as a whole are conducive to the healthy development of the industry.
Highly equipped with Chinese consumption, medical health, science and technology, etc
Sophie Earnshaw said that Burke's holdings in China and the index are quite different. They are bottom-up agencies dedicated to finding the most growing companies. At present, Berkey's China strategy, the heavy industry sector includes consumption, health care, technology, focusing on the allocation of companies in these areas that are consistent with policy orientation.
Sophie Earnshaw mentioned that recently bought companies include Shengbang Microelectronics. As a designer of analog chips, she judged that this company is expected to play an important role in China's path to achieving independent control of semiconductors. Another company is LONGi shares. He believes that LONGi shares are expected to play an important role in China's path to carbon neutrality. In order to achieve the turnover of funds, Sophie Earnshaw introduced that Burke also sold some stocks. The main reason is that the growth is less than expected.
As a long-term investor? How to get reliable information. She argues that reports from international investment banks tend to be less helpful for long-term judgment, and that she relies more on indigenous sources of information. For example, when talking to companies, she also mentioned that she will use some due diligence companies to understand the company's management, including the background of the management, the source of wealth and other information.
"When we study companies, the first question we ask is what is the relationship between this company and China's long-term socio-economic change? Will it contribute to China's long-term economic, social, cultural and environmental causes? Or it won't benefit from these changes." She said.
Common prosperity is of great significance to China's avoidance of the middle-income trap. In this regard, Burke's main operations are focused on antitrust. They recently sold Huya and iQiyi because the expected merger (or acquisition) program may not be implemented due to antitrust regulation.
Optimistic about Alibaba's long-term competitiveness
In addition to regulatory changes, competition is an uncertainty facing the e-commerce industry. Will competition squeeze the giants' profit margins?
Sophie Earnshaw doesn't think competition is new. China's e-commerce companies have fought all the way in fierce competition. Alibaba faced competition from eBay at the beginning of its birth. In the past five years, Alibaba has faced more competitors than ByteDance, Kuaishou and Bilibili. In addition, JD.com has always been a strong competitor to Alibaba. In the past two years, Pinduoduo has also formed a competition with Alibaba among low- and middle-income groups.
In the competition, Alibaba will lose a part of its market share, but she believes that China's e-commerce industry will continue to grow in double digits in the next 5-10 years. The penetration path in areas such as daily necessities is still relatively low. In the process of industry expansion, because Alibaba has the most powerful network of merchants and consumers, it will benefit first. Therefore, Berkey adopts a micro-high-end attitude towards Alibaba.
Speaking about the real estate sector that everyone is very concerned about, Sophie Earnshaw said that there are no open-end companies in the position. Because the long-term growth of such companies does not meet the requirements of Berkey. However, some related industry companies, such as related software companies, have certain positions. She believes that changes in the real estate industry have little impact on the changes in such companies.
EDIT: Captain
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