WEBVTT - Is China Reversing Its ‘Uninvestable’ Image? 0:00:02.600 --> 0:00:19.759 Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Merren Trogs Money, 0:00:19.800 --> 0:00:22.240 the podcast in which people who know the markets explain 0:00:22.320 --> 0:00:24.760 the markets. I'm Maren Sum's that Web. This week I'm 0:00:24.760 --> 0:00:27.760 speaking with Dale Nichols, portfolio manager of the Fidelity China 0:00:27.800 --> 0:00:31.200 Special Situations Trust. As we have discussed many times this 0:00:31.320 --> 0:00:34.440 year already on this show, the spell around American exceptionalism 0:00:34.440 --> 0:00:38.000 appears to have broken. Investors are looking elsewhere for places 0:00:38.040 --> 0:00:40.640 to park their money, and one of those places looks 0:00:40.720 --> 0:00:42.840 like China. So we thought it'd be a good idea 0:00:42.840 --> 0:00:45.160 to get on a China expert, which Dale is, get 0:00:45.240 --> 0:00:47.240 his insights on what he's saying on the ground, see 0:00:47.280 --> 0:00:49.360 what he makes for the various policy measures in place, 0:00:49.400 --> 0:00:52.360 think tariffs, and what companies he thinks have the greatest 0:00:52.440 --> 0:00:55.440 upside potential. Dale. Welcome to Merren Dorogs Money. 0:00:55.960 --> 0:00:57.120 Thanks Brian, great to be here. 0:00:57.480 --> 0:01:00.800 Okay, China is such a big topic as almost impossible 0:01:00.840 --> 0:01:03.040 to know where to start. I suppose that the first 0:01:03.040 --> 0:01:06.240 thing says that very few people are really invested in 0:01:06.319 --> 0:01:09.480 China in any significant way. It's a very small part 0:01:09.720 --> 0:01:13.720 of the World Index. It's percentage of the World Index 0:01:13.760 --> 0:01:17.520 in general. Nowhere near matches its share of GDP. So what, 0:01:17.560 --> 0:01:21.000 we're about twenty percent of global GDP and what three 0:01:21.120 --> 0:01:22.880 percent of the indices? 0:01:23.120 --> 0:01:23.840 Yeah around there. 0:01:24.319 --> 0:01:27.360 Yeah, So that's a huge mismatch. And most people will 0:01:27.400 --> 0:01:29.920 look at that and say, well, that makes a lot 0:01:29.920 --> 0:01:33.520 of sense because China is more or less uninvestable for 0:01:33.600 --> 0:01:38.000 an institutional investor and retail investors to tear clear of it. 0:01:38.440 --> 0:01:40.640 And if you look at the news over the last week, 0:01:40.720 --> 0:01:43.160 you think to yourself, well, that kind of makes sense. 0:01:43.600 --> 0:01:46.520 So politically, you've got China in the US now really 0:01:46.560 --> 0:01:49.960 involved in a fairly nasty row over trade, everyone accusing 0:01:50.000 --> 0:01:54.360 everyone else of violating, seriously violating, said China absolutely violating, 0:01:54.440 --> 0:01:57.880 totally violating, says Trump. And then you had the US 0:01:58.000 --> 0:02:00.880 Defense Secretary out the other day saying that China poses 0:02:00.960 --> 0:02:03.280 is real, that it could be imminent. You look at 0:02:03.280 --> 0:02:05.280 the polls and you see that, depending on who you 0:02:05.320 --> 0:02:08.440 listen to, between thirty five and forty percent of Americans 0:02:08.440 --> 0:02:11.400 class China as an enemy. And so you look at 0:02:11.400 --> 0:02:14.639 that and you think, well, for starters, given that political background, 0:02:14.760 --> 0:02:19.040 ignoring everything else, given that political background, when earth would 0:02:19.080 --> 0:02:22.919 I put money into China. So let's start there. How 0:02:22.960 --> 0:02:26.200 bad do you see that political conflict moment? 0:02:26.720 --> 0:02:28.680 Yeah, if we're talking about the political element, I think 0:02:28.720 --> 0:02:32.720 you're focusing more on the geopolitical side. And there's no 0:02:33.120 --> 0:02:36.720 question that you know, this friction that we've seen between 0:02:36.800 --> 0:02:39.040 China and the US is going to be with us 0:02:39.080 --> 0:02:40.640 for a long time. It's sort of a natural part 0:02:40.680 --> 0:02:44.280 I think of sort of China's rise. So I think that's, 0:02:44.400 --> 0:02:46.400 you know, that something we're going to have to have 0:02:46.440 --> 0:02:48.320 to deal with. I do feel that people have sort 0:02:48.360 --> 0:02:50.480 of becoming more comfortable with that. 0:02:51.160 --> 0:02:52.920 So let's just go right back when you say it's 0:02:52.960 --> 0:02:55.280 a natural part of China's rise, what do you mean 0:02:55.320 --> 0:03:00.639 that that economic challenge to the US will naturally cause 0:03:00.840 --> 0:03:01.960 geopligical conflict. 0:03:02.360 --> 0:03:04.960 Absolutely. What's often missed in a discussion where we talk 0:03:05.000 --> 0:03:08.200 about China's competitiveness is the element of scale. You know, 0:03:08.280 --> 0:03:11.280 obviously a huge population, a lot of companies leveraging that 0:03:11.320 --> 0:03:14.560 domestic population, taking that scale off shore, so the companies 0:03:15.040 --> 0:03:18.280 are extremely competitive. It's obviously not just scale we're going 0:03:18.320 --> 0:03:21.560 to talk about china competitiveness. We shouldn't also ignore the 0:03:21.600 --> 0:03:25.200 fact that companies in China have basically to compound at 0:03:25.280 --> 0:03:26.959 R and d spend at about twenty percent for the 0:03:27.040 --> 0:03:30.120 last decade, So I think that's that's a big part 0:03:30.120 --> 0:03:31.880 of the story. But I do feel that the scale 0:03:31.919 --> 0:03:36.640 element is often understated. No, we shouldn't be surprised. I 0:03:36.680 --> 0:03:39.240 think that China is so competitive in evs when they're 0:03:39.240 --> 0:03:42.040 producing sixty per seventy percent of the world's evs, and 0:03:42.160 --> 0:03:44.920 obviously the share of the supply chain, you know, more 0:03:45.040 --> 0:03:50.160 up upstream is even higher. So you know, I think 0:03:50.240 --> 0:03:54.360 that's that's sort of an important backdrop to keep in mind. 0:03:55.200 --> 0:03:57.800 Yeah, and we'll come back to all that kind of thing. 0:03:57.840 --> 0:03:59.640 I just want to keep it for the first bet 0:03:59.720 --> 0:04:03.520 right heavily high level. Exactly. It does it concern you 0:04:04.600 --> 0:04:09.160 that the Americans American administration is now talking in clear 0:04:09.240 --> 0:04:12.920 terms of you know, conflict and threat and enemy and 0:04:13.120 --> 0:04:19.240 all these words that, added to the endless tariff difficulties 0:04:20.080 --> 0:04:22.720 make it make it feel like a you know, stim 0:04:22.760 --> 0:04:26.440 that it has been a non confrontational relationship for the 0:04:26.520 --> 0:04:28.960 last twenty years, but now it really does feel kind 0:04:29.000 --> 0:04:29.440 of dirty. 0:04:30.360 --> 0:04:32.240 Yeah, But I think at the same time, there's a 0:04:32.279 --> 0:04:35.679 recognition of just how interconnected the systems are. Having scored 0:04:35.680 --> 0:04:38.240 percent come out and say there's not going to be decoupling. 0:04:39.080 --> 0:04:42.640 There's a recognition of just how interwoven the economies are. 0:04:42.800 --> 0:04:46.560 China's producing thirty percent of the world's goods. You know. 0:04:46.640 --> 0:04:52.039 It's it's you can't just decouple. The impact is too great. 0:04:52.080 --> 0:04:54.400 So I expect there's going to be friction, There's going 0:04:54.480 --> 0:04:57.280 to be you know, high level of competition, but I 0:04:57.320 --> 0:04:59.840 think at the same time as a recognition that both 0:05:00.400 --> 0:05:01.840 both are going to develop. 0:05:02.120 --> 0:05:04.120 And where do you see these trade talks ending out? 0:05:04.200 --> 0:05:06.040 Then where do you think we'll settle? 0:05:06.720 --> 0:05:10.080 We'll see on how you know, I would expect you know, 0:05:10.120 --> 0:05:11.800 I would expect you know, you're probably going to see 0:05:12.279 --> 0:05:14.960 cart levels towards Chine if I had to guess, probably 0:05:15.000 --> 0:05:19.560 around the thirty percent level, but it'll probably vary. Bisector. Yeah, 0:05:19.880 --> 0:05:21.600 I wouldn't be surprised if I had. If I was 0:05:21.640 --> 0:05:24.840 a betting man, i'd I'd say that's probably where you 0:05:24.880 --> 0:05:25.800 know things end up. 0:05:26.480 --> 0:05:27.240 You are a betting man. 0:05:27.320 --> 0:05:30.719 Those fund management is right, right, But I do think 0:05:30.760 --> 0:05:33.440 it's again it's you know, it's important to keep things 0:05:33.480 --> 0:05:36.520 in context. First of all, you know, I invest in companies. 0:05:37.320 --> 0:05:40.479 I'm sort of evaluating things, you know, at the stock level. 0:05:40.600 --> 0:05:43.040 I do feel, you know, from a market's perspective and 0:05:43.080 --> 0:05:45.520 as a bottom up sock picker, it often gets overstated. 0:05:45.560 --> 0:05:48.159 If you look at if you look at US sales 0:05:48.160 --> 0:05:51.000 as a percentage of total revenues of MSCI China, we're 0:05:51.000 --> 0:05:53.400 talking at about three percent, So you know, it's not 0:05:53.560 --> 0:05:56.000 huge exposure in terms of the companies. The domestic market 0:05:56.040 --> 0:05:58.480 is just it's just you know, so much, so much 0:05:58.480 --> 0:06:02.480 more important to the company. Obviously, you know, with tariffs, 0:06:02.480 --> 0:06:04.840 there's going to be a greater economic impact. You know, 0:06:05.200 --> 0:06:07.880 the export sector is still significant, but I do feel 0:06:07.880 --> 0:06:10.640 it's often you know, sort of overstated. I think it's 0:06:10.680 --> 0:06:12.560 also you know, important to keep in mind that you know, 0:06:12.640 --> 0:06:16.440 Chinese companies have obviously dealt with tariffs before they come 0:06:16.520 --> 0:06:19.440 through one point zero and the first sort of you know, 0:06:19.480 --> 0:06:22.520 the tariffs that are implemented, China you know, continued to 0:06:22.839 --> 0:06:26.120 gain global market share through that. So I think, you know, 0:06:26.200 --> 0:06:29.040 and again this is a reflected mind discussions with companies 0:06:29.040 --> 0:06:31.080 as well. The ones that do have exposures to the 0:06:31.200 --> 0:06:34.919 US are pretty well prepared. And you know, as someone 0:06:34.920 --> 0:06:37.240 who looks beyond China as an investor as well, if 0:06:37.279 --> 0:06:39.520 there's a you know, if there's a group of companies 0:06:39.560 --> 0:06:42.320 that I would sort of rely on for adaptability, resilience, 0:06:42.320 --> 0:06:45.040 et cetera, would probably be the Chinese group of companies 0:06:45.080 --> 0:06:48.640 to come through this. Another thing that you know is 0:06:48.680 --> 0:06:52.359 I think perhaps underappreciated and a lot of sectors, the 0:06:52.440 --> 0:06:55.760 whole supply chain is is is Chinese is Chinese companies. 0:06:56.600 --> 0:06:59.200 So you know, in those cases when we talk to companies, 0:06:59.680 --> 0:07:02.799 no one worried about market share loss, you know, through terrorists. 0:07:03.000 --> 0:07:07.360 The discussion all comes down to what happens around price elysicity, 0:07:07.400 --> 0:07:10.320 What happens to volumes when prices go up thirty forty percent. 0:07:10.520 --> 0:07:13.880 That's this type of discussion, and obviously, you know there 0:07:14.520 --> 0:07:16.840 a lot of them are thinking about, you know, if 0:07:16.840 --> 0:07:19.200 they were to you know, you know, invest in us, 0:07:19.240 --> 0:07:21.640 what would that involve. And it's a tough decision for 0:07:21.720 --> 0:07:23.080 them because a lot of a lot of the time 0:07:23.640 --> 0:07:26.120 there is no supply chain, so they're starting a very 0:07:26.160 --> 0:07:29.600 low level. It's going to take years, and you know, 0:07:29.720 --> 0:07:32.360 there's a good chance the political environment might be different 0:07:32.400 --> 0:07:35.040 by the time that capacity comes online. So that's sort 0:07:35.080 --> 0:07:37.280 of the that's sort of the you know, the discussions 0:07:37.320 --> 0:07:39.440 that we're having the companies at the company. 0:07:39.200 --> 0:07:44.480 Level, and outside that the macro background involving the terriffts, 0:07:44.480 --> 0:07:47.520 et cetera. The macro situation in China, we read a 0:07:47.560 --> 0:07:50.040 lot about the dunning, a high debt level, the aging 0:07:50.080 --> 0:07:54.680 population and income and wealth inequality, property downturn, property downtime 0:07:54.720 --> 0:07:58.960 being the big one, of course, but all those elements 0:08:00.040 --> 0:08:04.160 areas a problem, are they for the listed companies in China? 0:08:05.000 --> 0:08:08.400 Sure? Obviously the economic backdrop is important. Again, I think 0:08:08.400 --> 0:08:11.680 it's important to keep things in context. You know, we're 0:08:11.720 --> 0:08:14.840 still talking about five percent growth in a global context. 0:08:15.080 --> 0:08:18.120 It's not that it's not that bad, and I think 0:08:18.160 --> 0:08:21.040 it's you know, looking forward, it's fair to assume that, 0:08:21.200 --> 0:08:24.280 you know, the consumption part of that grows faster. So 0:08:25.000 --> 0:08:26.760 you know, it's not you know, it's not a it's 0:08:26.760 --> 0:08:29.960 not a it's not a particularly bad environment. You touched 0:08:29.960 --> 0:08:33.559 on property, you know, it's definitely been a significant drag 0:08:33.600 --> 0:08:36.760 for the economy over over the past few years. You know, 0:08:36.840 --> 0:08:40.960 my senses that where we're definitely past the worst part 0:08:40.960 --> 0:08:45.040 of that adjustment. I'm particularly focused on, you know, the 0:08:45.559 --> 0:08:47.520 property market is definitely not going back to the head 0:08:47.520 --> 0:08:51.240 of years of you know, of huge growth. I'm very 0:08:51.280 --> 0:08:54.439 focused on what's happening at property prices because I think 0:08:54.480 --> 0:08:57.360 that's a key factor behind the mindset of the consumer. 0:08:58.000 --> 0:09:02.240 And you know, the consumer has definitely underspent through COVID. 0:09:02.440 --> 0:09:07.720 Post COVID, we've had a significant increase in deposits, tumber 0:09:07.720 --> 0:09:10.400 confidence is low, so you know, I'm very focused on that. 0:09:10.520 --> 0:09:13.520 But actions have been taken. You know, you need to 0:09:13.600 --> 0:09:15.559 keep in mind that there was a period of significant 0:09:15.600 --> 0:09:19.560 property tightening that's mostly unwound now, but there's still there's 0:09:19.600 --> 0:09:21.600 still you know, things like christ caps and that sort 0:09:21.640 --> 0:09:24.720 of thing in certain areas. So you've seen significant action 0:09:24.920 --> 0:09:27.960 to support the property sector, but I expect there's there's 0:09:28.000 --> 0:09:30.640 definitely more to come. I do feel, you know, particularly 0:09:30.679 --> 0:09:34.640 from September last year, as a greater recognition amongst policymakers 0:09:34.679 --> 0:09:36.839 of just what a drag that has been. And we're 0:09:36.840 --> 0:09:40.120 starting to see signs of stabilization. So, you know, looking 0:09:40.120 --> 0:09:42.400 at that price element, if you look at first tier 0:09:42.480 --> 0:09:46.120 cities in I think six of the last eight months, 0:09:46.120 --> 0:09:49.360 you've had price increases, not the loss, and there's signs 0:09:49.360 --> 0:09:51.880 of stabilization in the primary market there as well, So 0:09:52.720 --> 0:09:55.040 you know, I think it's you know, we're sort of 0:09:55.080 --> 0:09:57.240 on track at some point, but you're on your prices 0:09:57.240 --> 0:10:00.800 to improve, and once that stabilization continues, you have to 0:10:00.840 --> 0:10:04.080 think that there's there's more potential for you know, that 0:10:04.960 --> 0:10:07.800 very sort of low levels of consumption to to start 0:10:07.840 --> 0:10:08.319 to improve. 0:10:09.120 --> 0:10:11.520 Okay, so this this is the sorry carry on. 0:10:11.480 --> 0:10:13.160 And I was just going to finish the point on property. 0:10:13.160 --> 0:10:15.040 I mean, as I said, that's been a major drag. 0:10:15.720 --> 0:10:19.560 The peak of the drag is probably this year as well. 0:10:20.160 --> 0:10:22.760 And again it will still be a drag I expect, 0:10:22.760 --> 0:10:25.160 but it will be less than it has been has 0:10:25.200 --> 0:10:29.640 been in the past. So you know, I think it 0:10:29.679 --> 0:10:33.080 is a pretty good case for things to to slowly improve. 0:10:33.920 --> 0:10:35.679 And you know, again we get the sense of the 0:10:35.720 --> 0:10:39.360 government is very much focused on on driving that you know, 0:10:39.360 --> 0:10:41.679 they're looking at the potential drag that that traffs can 0:10:41.720 --> 0:10:44.760 be and I think, you know, there's there's you can 0:10:45.120 --> 0:10:46.640 rest assured that there's going to be there's going to 0:10:46.720 --> 0:10:47.240 be more coming. 0:10:47.480 --> 0:10:49.360 Although we have heard, for we do here a year 0:10:49.400 --> 0:10:51.520 after year after year that the Chinese government is very 0:10:51.600 --> 0:10:54.400 very focused on shifting the Chinese economy away from being 0:10:54.440 --> 0:10:56.640 a pure export driven model towards being more of a 0:10:56.720 --> 0:11:00.040 consumer model, and we do hear this constantly and we 0:11:00.080 --> 0:11:02.880 don't necessarily see it happening. There's an awful lot of 0:11:02.880 --> 0:11:05.960 wish for thinking and not necessarily the big macro move 0:11:06.040 --> 0:11:07.280 that everyone is after. 0:11:08.400 --> 0:11:12.600 True, I mean, we haven't seen the sort of you know, 0:11:12.720 --> 0:11:15.040 post COVID stimulus that you've seen in a lot of 0:11:15.040 --> 0:11:19.280 the West. But you know, again, the sense we have 0:11:19.440 --> 0:11:22.320 from listening to the policy makers is an increasing awareness 0:11:22.360 --> 0:11:25.080 of the need to do more, and I think we 0:11:25.360 --> 0:11:27.440 see we will see more to come. And again I 0:11:27.440 --> 0:11:31.320 think that property element is important. And the fact that 0:11:31.360 --> 0:11:34.240 we're seeing things start to say but stabilize, I think 0:11:34.320 --> 0:11:36.679 is is a good positive sign. 0:11:37.080 --> 0:11:40.320 Let's talk then a bit about the market. I mean, 0:11:40.360 --> 0:11:43.560 the long term performance of the Chinese starle market. If 0:11:43.559 --> 0:11:47.079 you look at MSc China is pretty awful, really and 0:11:47.360 --> 0:11:50.199 you've had a slightly better year this year, but nonetheless 0:11:50.240 --> 0:11:53.720 not great. And partly the things that we've been talking about, 0:11:53.720 --> 0:11:56.360 the macro stuff, but also the fact that you've got 0:11:56.360 --> 0:11:59.200 a very large section of the market that is state 0:11:59.200 --> 0:12:03.400 owned enterprises, that you have relatively low margins, that you 0:12:03.440 --> 0:12:06.560 have a sense that an awful lot of Chinese companies 0:12:06.600 --> 0:12:09.520 are more focused on market share than profits, that possibly 0:12:09.600 --> 0:12:14.120 their operations can be more driven by state ambition than 0:12:14.160 --> 0:12:17.120 by corporate ambition, and those are some of the elements 0:12:17.200 --> 0:12:20.200 that maybe have led it to underperform and still be 0:12:20.440 --> 0:12:23.640 remarkably cheap, but cheap relative to global markets. Cheap practice 0:12:23.720 --> 0:12:25.160 for US, the. 0:12:25.120 --> 0:12:29.920 State owned portion of the market has has declined. Yeah, 0:12:29.960 --> 0:12:32.960 so there's been a real market change in the makeup 0:12:33.120 --> 0:12:35.920 of the market over the past five to ten years. 0:12:35.960 --> 0:12:40.720 That so proportion has definitely fallen. You know, it's no 0:12:40.760 --> 0:12:47.360 longer market that is completely dominated by energy, banks and telcos. 0:12:48.720 --> 0:12:50.720 The private sectors can become a much bigger part of 0:12:50.720 --> 0:12:53.439 the market but important the biggest driver of the economy 0:12:53.480 --> 0:12:56.520 as well, the driver of growth, biggest driver of employment, etc. 0:12:56.960 --> 0:12:59.160 And you know, it's worth noting we've had the creation 0:12:59.280 --> 0:13:02.600 of of whole new sectors. If you look at what's 0:13:02.600 --> 0:13:06.400 happened in the auto space with the evs, you know 0:13:06.400 --> 0:13:10.160 that we've touched on this is obviously mostly driven by 0:13:10.559 --> 0:13:14.200 by private companies. So that's where the majority of the 0:13:14.240 --> 0:13:17.120 focus is for us, and we don't ignore the sos, 0:13:17.160 --> 0:13:21.200 particularly when the obviously evaluation is a is a big factor. 0:13:21.280 --> 0:13:24.200 So you know, there can be good opportunities we did 0:13:24.200 --> 0:13:26.959 in the SOS, but gain if we're looking out sort 0:13:26.960 --> 0:13:28.920 of five to ten years, it's the private companies that 0:13:28.960 --> 0:13:31.280 are going to be are going to be driving and. 0:13:31.240 --> 0:13:34.200 Driving the growth, okay, and what might close up? Who's 0:13:34.200 --> 0:13:37.080 going to come into this market? Who will the buyers be? Now? 0:13:37.120 --> 0:13:39.360 Are you seeing shift in the institutional mindset? That's the 0:13:39.440 --> 0:13:41.720 institutional investors are looking at their allocations and saying, well, way, 0:13:41.720 --> 0:13:43.760 we're exposed to the US. We've got this giant economy 0:13:43.800 --> 0:13:46.680 over there, We've slightly been alerted to by the teriff argument, 0:13:46.880 --> 0:13:48.880 and maybe it's time to go above two three percent 0:13:48.920 --> 0:13:50.880 in China because of course, an awful lot of institution 0:13:50.960 --> 0:13:55.000 investors and global funds, they are underweight even the index 0:13:55.000 --> 0:13:55.680 allocation to. 0:13:55.760 --> 0:14:00.000 China, aren't they absolutely Well, first of all, you know, 0:13:59.840 --> 0:14:04.000 you would hope it's the domestics, So you know, you 0:14:04.080 --> 0:14:08.520 have the big domestic institutions that are you know, clearly 0:14:08.520 --> 0:14:10.640 investing in the market. But you would hope that you know, 0:14:10.679 --> 0:14:13.720 the individuals you can come back to the market. We've 0:14:13.960 --> 0:14:16.079 seen an increase in the number of brokerage accounts and 0:14:16.160 --> 0:14:19.640 that sort of thing last year or so, so hopefully 0:14:19.640 --> 0:14:22.760 that would be a driver you know, on on the 0:14:23.280 --> 0:14:26.480 you know, the more international stage. As we've talked about, 0:14:26.520 --> 0:14:29.400 we're starting from a very low point. I think, you know, 0:14:29.480 --> 0:14:31.440 sort of commentary out of the US that you know, 0:14:31.440 --> 0:14:33.480 we're not to coupling. I think there's a recognition that 0:14:33.640 --> 0:14:36.760 China is investable. If we think about where weights are, 0:14:37.160 --> 0:14:40.320 you know, there's good potential you know, for that to 0:14:40.400 --> 0:14:43.080 move up. You know, we talked about that discount relative 0:14:43.840 --> 0:14:47.280 to the US and what's driven that if you think 0:14:47.320 --> 0:14:52.040 about things like, you know, policy certainty and things like that. 0:14:53.280 --> 0:14:55.680 You know, obviously, you know, we've been through a very 0:14:55.760 --> 0:14:58.240 volatile period in terms of policy, you know, coming out 0:14:58.280 --> 0:15:02.920 from the US. You know, China is on the fifth 0:15:02.960 --> 0:15:06.120 year of its fourteen five year plan, so they're pretty 0:15:06.200 --> 0:15:08.120 you know, there's a fair bit of certainty about you know, 0:15:08.160 --> 0:15:12.120 so generally where policy is going, you know, over time, 0:15:12.160 --> 0:15:14.280 if they're not to coupling, hopefully there's a recognition of 0:15:14.320 --> 0:15:17.600 that stability that can start to bring and what is 0:15:17.600 --> 0:15:20.320 a pretty still a pretty significant discount back. 0:15:21.440 --> 0:15:23.400 Yeah, let's talk then about the kind of companies that 0:15:23.440 --> 0:15:25.920 you're looking for. I mean, if it's obvious to say 0:15:26.040 --> 0:15:28.160 that the Chinese market should be something of a stock 0:15:28.200 --> 0:15:31.960 picker's paradise, right, that it's not necessarily a market that 0:15:32.040 --> 0:15:34.360 the passive investors should go for again, because you might 0:15:34.400 --> 0:15:36.680 get poked with a whole portfolio full of of sees 0:15:36.720 --> 0:15:39.400 et cetera. So, if you are an active manager going 0:15:39.400 --> 0:15:41.800 into this market, do you that, I'm slightly assuming you 0:15:41.880 --> 0:15:44.680 end up with a bias to med and small cap companies? 0:15:45.360 --> 0:15:46.040 How do you choose? 0:15:46.080 --> 0:15:49.200 Where do you look ow do the work? Yeah, yeah, absolutely, 0:15:49.240 --> 0:15:51.600 I completely agree with you that. You know, it's as 0:15:52.160 --> 0:15:55.080 a bottom up stock picker, you've got, you know, a 0:15:55.160 --> 0:15:57.800 huge range of toysture. You've got massive change on the ground, 0:15:57.840 --> 0:16:00.360 the winners and looters losers are being a being sort 0:16:00.400 --> 0:16:03.040 of separated all the time as a process of consolidation 0:16:03.440 --> 0:16:06.200 that's happening. And yet you know, you have this market 0:16:06.200 --> 0:16:09.280 that's driven by macro headlines, geo political headlines, et cetera. 0:16:09.440 --> 0:16:12.280 So a little them up stock picker, it's you know, 0:16:12.280 --> 0:16:14.600 it's very good. You know, we spread the net very 0:16:14.600 --> 0:16:18.120 wide in terms of what we're looking for, but you know, 0:16:18.120 --> 0:16:20.120 I do tend to focus on those areas of the 0:16:20.160 --> 0:16:22.160 economy that we know are going to be bigger parts 0:16:22.680 --> 0:16:24.640 if you're looking out sort of five to ten years. 0:16:25.160 --> 0:16:28.560 I talked about, you know, the consumer. I think that 0:16:28.920 --> 0:16:32.120 particularly just in sort of the mass area, that's it's 0:16:32.240 --> 0:16:34.840 I think the investment set up is really strong. You know, 0:16:34.920 --> 0:16:37.400 you've got companies that have been sold over over the 0:16:37.440 --> 0:16:40.440 concerns the consumer has been weak. But as I've mentioned, 0:16:40.440 --> 0:16:44.120 we've got a consumer that has underspent for many years. 0:16:44.560 --> 0:16:46.320 As a result of that, they've got very strong balance 0:16:46.400 --> 0:16:50.320 sheets and stimulus is coming. And I've trust that with 0:16:50.560 --> 0:16:53.240 perhaps other markets in the West where you may have 0:16:53.280 --> 0:16:56.480 a consumer that's more extended and austerity is coming. So 0:16:56.560 --> 0:16:59.200 I think, you know, the setup for the consumer is 0:16:59.200 --> 0:17:01.600 is actually quite good. Would you know. I focus on 0:17:01.680 --> 0:17:05.760 areas like some of the staples areas you look at, 0:17:05.840 --> 0:17:07.840 you know, you talked about increased competition, the lig an area, 0:17:07.920 --> 0:17:11.120 like beer, and I think competitive intensity has definitely come 0:17:11.200 --> 0:17:15.440 down natural premialization. They're getting pricing. They've done a lot 0:17:15.480 --> 0:17:18.760 in terms of rationalizing factories and things like that, and 0:17:19.240 --> 0:17:22.240 that capital return story is very live and well. Sports 0:17:22.280 --> 0:17:25.679 where you've got look at that spend per capita on 0:17:25.720 --> 0:17:27.800 sportswear in China, it's a fraction of what we see 0:17:27.800 --> 0:17:28.280 in the West. 0:17:28.560 --> 0:17:30.520 Well, let me ask you before before you move on 0:17:30.560 --> 0:17:33.200 to anything else about the luxury goods sector in China, 0:17:33.400 --> 0:17:35.480 and that one of the things we've been reading about 0:17:35.520 --> 0:17:38.919 a lot recently, and the decline of interest in Chinese 0:17:38.960 --> 0:17:41.879 consumer is in the big Western luxury brands and they 0:17:41.880 --> 0:17:44.080 are shift back to more more of a sense of 0:17:44.320 --> 0:17:45.119 domestic luxury. 0:17:45.200 --> 0:17:49.080 You're seeing that, yeah, I mean, if you're talking true luxury, 0:17:49.119 --> 0:17:51.439 I mean this is a space globally that's dominated by 0:17:51.440 --> 0:17:54.960 the European. Yeah. So you know, if you were to 0:17:55.000 --> 0:17:58.199 focus on luxury in China, there's not many ways to 0:17:58.240 --> 0:18:01.200 play it. I'd say, you know, this strongest luxury brand 0:18:01.320 --> 0:18:05.639 in China is probably Malti as the top by Jo Brandy. 0:18:06.080 --> 0:18:08.520 So you know, it's not a it's not a big 0:18:08.560 --> 0:18:11.680 space if you focus purely on luxury. Obviously there's there's 0:18:11.720 --> 0:18:15.080 there's some upper market brands, but you know, the real 0:18:15.080 --> 0:18:18.439 opportunity I think is much more in mass nice market. 0:18:20.320 --> 0:18:22.760 Okay, And what about the and I suppose when we 0:18:22.800 --> 0:18:26.560 look at China at the moment, we tend to see innovation, 0:18:26.680 --> 0:18:29.520 don't we. We see the biggest producers of the evs. 0:18:29.640 --> 0:18:33.080 We see this extraordinary progress in in AI, the catchy, 0:18:33.160 --> 0:18:36.880 the unexpected catch up, and we see the huge leadership 0:18:36.960 --> 0:18:39.800 in solar panels and renewable energy. And also of course 0:18:39.840 --> 0:18:43.080 they're a much faster shifted to using nuclear energy than 0:18:43.119 --> 0:18:45.320 the rest of us. So we see this this this 0:18:45.560 --> 0:18:48.640 ongoing innovation and the whole idea that even a few 0:18:48.720 --> 0:18:51.480 years ago, people would be writing about how China with 0:18:51.600 --> 0:18:53.560 China was all very well, but really they're just copying 0:18:53.600 --> 0:18:57.600 and that story is over stunning innovation in China. 0:18:57.359 --> 0:19:01.720 Now absolutely true. Yeah, absolutely, it's something that we see daily. 0:19:01.760 --> 0:19:04.640 I talk about how companies are investing and you're seeing 0:19:04.680 --> 0:19:08.680 that coming through it just you know, improving competitiveness, which 0:19:08.720 --> 0:19:11.239 is teating into priss and plow for companies, you know. 0:19:11.359 --> 0:19:13.679 So yeah, I mean that's definitely a big trend. I 0:19:13.680 --> 0:19:16.840 have a pretty big, big bet in the trust in industrials, 0:19:17.400 --> 0:19:19.600 and there's still there's still you know, room for that 0:19:19.680 --> 0:19:22.320 to play out. If you look at an area like robotics, 0:19:23.000 --> 0:19:24.840 up until a few years years ago, the top four 0:19:24.880 --> 0:19:27.720 players were all far you know, the top sort of 0:19:27.760 --> 0:19:31.080 the big four. Now two of those are now local, 0:19:31.200 --> 0:19:34.160 but there's still room to make to make share gains. 0:19:34.160 --> 0:19:37.720 Domestical what are those local what are those local robotics. 0:19:37.359 --> 0:19:41.400 Companies, companies like Stern and in events. You know, companies 0:19:41.400 --> 0:19:43.680 that are that are pushing up into into that robotic space. 0:19:43.720 --> 0:19:45.840 A lot of them, like an Inmates, is doing some 0:19:45.920 --> 0:19:48.679 of the other components as well. You know, there's definitely 0:19:48.760 --> 0:19:52.119 room to room to grow there. That whole ev chain 0:19:52.840 --> 0:19:55.600 that we talked about is very exciting. 0:19:56.800 --> 0:19:59.879 They've got this great shift to high quality growth. One 0:20:00.119 --> 0:20:02.840 of the problems that people have felt with that with 0:20:02.960 --> 0:20:06.240 stock markets over the last four or five years, last decade, 0:20:06.280 --> 0:20:08.520 maybe is it an awful lot of the growth takes 0:20:08.560 --> 0:20:12.080 place off market before companies list. Right, So the real growth, 0:20:12.080 --> 0:20:14.840 the real innovation, the real excitement is in private markets, 0:20:14.840 --> 0:20:18.080 not public Do you feel that in China as well, 0:20:18.440 --> 0:20:23.879 that maybe the listed stocks don't necessarily represent the extent 0:20:23.920 --> 0:20:27.000 of the innovation in the economy. It's hard to get 0:20:27.040 --> 0:20:27.720 real access. 0:20:28.240 --> 0:20:31.320 Yeah, no, it's a very fair point that, you know, 0:20:31.600 --> 0:20:34.360 I mean, globally, companies are coming to market later. You've 0:20:34.400 --> 0:20:38.520 got some huge private companies. Luckily for us, we're quite 0:20:38.520 --> 0:20:40.080 active in the private space as well. 0:20:40.640 --> 0:20:43.480