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China's potential for huge profits - podcast

by Lewis Panther SA FIN | 18 Feb 2019
A fund manager has told FINSIA members China will be open for business after the Trump trade war - with the potential for huge growth.

Keywise Capital CEO Fang Zheng, who spoke to members in Melbourne and Sydney, boldly claimed: “My only objective is to make you money.”

But the veteran investor has a successful track record and counts the immense Norwegian Sovereign Fund as one of the clients who contribute to his firm’s US$2billion AUM.

And the former Rockefeller and JP Morgan portfolio manager has laid out his five reasons why the country that has seen its GDP grow 85-times since capital markets opened up in 1978.

Explaining his reasons why his homeland is good for Australian investors, he said: “After 40 years of development, China it is the second largest market in the world. And here is still room for more.

“If China and the US can reach a trade agreement, that will facilitate structure changes positively and lead to much more resilient economic growth going forward. 

“Because China have five positive factors, which is a hardworking people, well educated population, saving rate in China it is the highest among the global peers 40%, and also government running purchase supplies, and most importantly, China has reached 55% urbanisation rate.

“That means China can promote a stronger domestic consumption oriented economy rather than purely relying on investment driven economy.

“So there are five positive factors which are allowing China to sustainably grow the economy by four to six percent - the hardworking population, and education, allowing China to move from labour intensive economy to a value added economy through innovations.”

The likes of Tencent and the Alibaba are among the kinds of companies to watch over the next few years, he said. 

But he also sounded a note of caution.

He explained: “We are addressing the three negatives, which has been damaging to the Chinese equity market.”

“Too much regulation, too much dominance of state owned enterprises and lack of law enforcement in China will be addressed by a China US relationship.

“It will boost the confidence for investing into China.

“The risk that Keywise wants to avoid first is the permanent loss of the capital.

“That's why I was encouraged to set up local offices in Beijing and also Hong Kong to do as much thorough due diligence in China.

“We are visiting the companies, but we also chat with the drivers, talk to the mid managers, check the warehouse, even a toilet to find any symptoms of “

“We look at the accounting, auditors, whether they are reputableor not. I think in this you need to have local knowledge as to make a judgment whether those numbers you can trust or not.

“That’s why I want to talk to the Australian investor. China which is your largest trading partner, and there is a significant opportunity for you to invest into China, particularly in the early stage.

“You will have a significant opportunity to make huge returns, especially in the new economy.”

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