Despite widespread investor concerns about China's economic growth and corporate earnings, the nation's largest mutual fund manager believes the pessimism is misplaced. The fund manager points to the government's ambitious target of more than doubling per capita GDP over the next decade as a significant upside opportunity for investors.
Unlocking China's Untapped Potential
Challenging the Narrative of Stagnation
Investors are increasingly questioning whether China's growth will stall, as evidenced by depressed stock valuations and record-low yields on longer-dated government bonds. However, the fund manager, Zhang Kun, argues that this narrative of stagnation is misplaced. He believes that the government's goal of boosting per capita GDP to match the West by 2035 presents a significant opportunity for investors.According to government think tanks, if this goal is achieved, per capita GDP in China could reach ,000, a substantial increase from the current level of ,322. Zhang contends that as long as living standards improve and people's lives get better, there will surely be a group of companies that can offer quality products and services, delivering sustained growth and returns.
Patience and Optimism: The Key to Unlocking Value
The fund manager strongly disagrees with the pessimistic expectations that are built on worries over economic stagnation. He emphasizes the need for patience, stating that the expectations of secular returns by high-quality companies are considerable. Even if these companies maintain their current profitability, their dividend yields are already close to some traditional dividend stocks, making them attractive investment opportunities.Zhang's stock-picking strategy remains focused on identifying companies with good business models, high bars for industry competition, sufficient cash flows, and strong corporate governance. This approach has led him to invest in companies such as Tencent Holdings, CNOOC, and Wuliangye, which make up a significant portion of his fund's portfolio.
Navigating Challenging Times: Adapting and Diversifying
The second quarter of the year proved to be challenging for Zhang's fund, with the net asset value falling 2.3%. This decline was in line with the broader market, as the CSI 300 Index fell 2.1% during the same period. However, the fund manager's strategy of diversifying into Hong Kong-traded stocks, which accounted for 47% of the fund's assets, helped mitigate the impact of the market downturn.The addition of Hong Kong-listed luggage maker Samsonite International as the fund's ninth-largest holding was a notable change in the portfolio during the quarter. Meanwhile, the retail banking giant China Merchant Banks was removed from the top 10 holdings, reflecting the fund manager's ongoing evaluation and adjustment of the portfolio to adapt to market conditions.
Embracing the Long-Term Potential of China's Growth
Despite the short-term challenges, Zhang remains optimistic about the long-term potential of China's growth. He believes that the government's ambitious targets for per capita GDP growth present a significant opportunity for investors who are willing to take a patient and strategic approach.By focusing on high-quality companies with strong fundamentals and the ability to deliver sustained growth, the fund manager is positioning his portfolio to capitalize on the upside potential of China's economic transformation. As the country continues to develop and improve the living standards of its citizens, Zhang is confident that a group of companies will emerge to meet the evolving needs of the market, offering investors the chance to participate in China's long-term prosperity.
