Why Are Chinese Markets an Exciting Investment Opportunity for the Region?

[Music] I think you or be hearing a lot of the positive things and and the convictions on on the investment philosophy of the two market so I'm going to quickly start uh with a question opening to to all of the panelists given your expertise in private and public investment so given the current macroeconomic hadwins and a lot has been happening globally on the geopol um geopolitical Landscaping sector so a lot of investors are thinking about their Global asset allocation strategy so in this environment how are you thinking about your own investment strategy and why China is an attractive Market to you I'll start with um with with Sean yeah yeah so for TR Capital we are of a very bottomup based approach we're focusing on China we think China represent a great opportunity set if you look at China GDP is around 70% of the USA but within the index it's only representing say around 3% % under that a lot of people are underwe because of geopolitical situation Etc so like Warr buff once said right when other people are fearful we want to be brave right we think right now it is a great time to really start investing and collecting a lot of the great company that we think has a very strong Competitive Edge that can continue compound through time so if you look at the valuation right now within the index a lot if you look from P perspective it's very cheap you look from a long run DCF perspective Etc we think now is a a great time to look into China great and Ethan yeah for Artic Capital we have uh we are multi strategy investment manager so we invest into special situation we invest into um pivate Equity we have the uh EV fund invest into the uh EV Supply change that we are very bullish and also we have the um we have the special situation fund and uh after the collapse of the property Market in China uh a lot of property developers are in trouble so we see a lot of good investment opportunities provide fundings to some um projects in the prime location in Tian cities or uh we provide fundings to specific property developers or companies that we can we we we are comfortable um for example last year we we commit $8 million us into a very successful China company they uh the new materials producer and the company um they are they're going to have a um sizable m&a and this the fundings from from from us we have very uh inp analysis in the company and also take the buddish views on the sector they engage in and um we we rest structur the deal that we invest into the convertiable bonds that provide 9% Cent um per per anom and also press the upside and the company perform very well in this the company is sitting at $300 million us cash in the balance sheet and after the announcement of the transactions the they receive another 130 million Us doll from the local government so a lot of opportunities in China I think that U like Sean mentioned with the tumble or the the the the end of the bare Market after 3 years from 2021 now the valuations becomes very attractive and also with the reason positive measures supportive measures by the central government we are we are take we take a very bullish R and see the the market has stable and has very good potential upside certainly very very convincing live example so turn to Dr K and come back to Leo in a second so what's your perspectives on on your Global strategy and and and about China thank you for having me here just tell you a bit about Gulf Capital we're Incorporated in Abu Dhabi uh we created the the largest oldest private Equity Firm here uh we have 300 shareholders who all ried behind us to create a regional champion from the Gulf for the gulf but increasingly our portfolio companies are growing and we're pushing our way into Asia and uh we are very encouraged by the growth prospects in Asia we've done 15 acquisition in Asia every every time we buy a company in the Gulf we go to Asia including China essentially and I tell our Global Investors if you want growth you have to be in this corridor from the near to the Far East we're creating this new Silk Road so we're very encouraged by the growth prospects in uh China Hong Kong and broader Asia and uh our hope we started here and we're going there but we we established an office in Asia we'd love also to bring Chinese and Asian companies to the gulf because they bring great technology Kno how uh excellence in manufacturing so we're trying to see uh we know where the growth here is in the Gulf what are the best companies we can bring from China to the gulf great I think very diverse exposure so Leo we the audience will all be very keen to hear your understanding on the recent series of announcements of the stimulus policies what's what's in your view um what's the underlying impact and will that lead to a economic transformation and what impact will create to the capital markets that is relevant for all the investors here thank you uh yes I actually last night I wrote down some key points uh quite fresh uh on the China policy change actually this is not the first time uh Chinese government make a very strong announcement is a set of policy change uh the first time back to the end of September at that time actually Chinese government already changed the direction of a set of policy which include uh policy towards property Market policy towards the capital market and policy towards the whole uh economic growth especially uh focus on the consumption but this time this meeting yesterday's meeting is very important to set a tone for next year's policy uh Economic Policy I will share some key points with you number one they were to do whatever whatever it takes to fight with the deflation situation so they will do two things one is they will adapt losen monetary policy because normally they will use the term prudent monetary policy but this time after 2008 the first time Chinese government will adapt losing monetary policy for next year or maybe stuff wrong here yeah that's very important change in last nearly uh 18 years and the second they will do a very active Physical policy yeah that's one thing to try to give as much liquidity as you can in match to the market to the system that's one very key point the second one second one is they said speak out very clearly they try to do two things to stay stabilize the stock market and the property Market which means to stabilize in my opinion is to make it profitable make it the price rise again yeah that's the second point the third point is stimulate stimulate uh domestic consumption and will give subsidy to to Consumers actually this is the first time central government triy to stimulate economy not through the capex plan not through the infrastructure building this time is the first time to stimulate economy through the the massive consumption and give subsidy to the consumer directly that's the third point point and the fourth point is try to resolve the local government debt uh people all talking about the 10 trillion R&B uh to buy out the local government debt is not enough but I believe the direction for the policy is much more important than the amount of the money because on the way either they can change the amount of the money and also you know after you deal with some Bad Assets the other assets sometime may turn from the Bad Assets into good assets after certain level of the price increase so that's the Four Points I want to share with you and also given the valuation uh it's kind of a quite easy to find a group of stocks uh for next two to three years uh you can deliver EPS grow around 15 to 20% so if the valuation doesn't expand uh we can get 50% in next two to three years but if the valuation expand a little bit see 20 or 30% from this uh historical low level which means we can double our a set of uh selection in next three years so I'm quite positive at this point and this is happening is real Direction Change great thank you for giving us a very life and timely read on the latest policies I think everyone is particularly the outside of the world or speculating a lot of things what does an implication of those so so this is a very s of targeted basket of serious policies and we start to see more to come next year so coming back to Sean um so your fund has been generating quite good alpha performance Against The Benchmark um can you share with some of the secret sauce in generary Alpha and did you did you leverage or are you going to leverage AI in some of your investment process yeah thanks for a question so uh the short answer is there's no secret sauce we have been very focused well first very focused on China Market very focused on Long Run and I think that's quite key especially in an emerging market that has a great amount of volatility I think for us we continue to try to identify the great company that we think can continue compound through time and this in the long run will generate really good return in the long run compounding matter and second is if you look within China when we're running due diligence we believe it's very important to be on the ground so my self investment team uh we're in shenzen in China also in Shanghai and we have back office Hong Kong we think being on the ground be able to channel check with the supplier the Upstream the downstream the client is very important and be very Hands-On on the product so before when I was like doing a lot of research within the EV segment I actually bought a bunch of those cars go around a road trip within China to get a better understanding of the consumer experience and I think third for our fund at triata Capital we triangulate a lot of alternative data so that means if you think about China as a whole right the digital penetration rate of the mobile phone is more than 70% right and if you look at the number of cities within China that has more than 7 million population size which is similar to Manhattan in China has 15 cities like that but even if you visit all 15 cities it's only 12% of the whole population size right so the question is how do you run very deep down due diligence by leveraging alternative data big data which is anything digitally you actually get a tremendous amount of view right so for example if you look at Tik Tok doing which has more than 1 billion ma Etc if you look at different social element search Trend or gmv Trends on on the e-commerce site you actually get very deep down insight into the consumer Behavior get an understanding of the UN economics of various competition etc etc so that's really how we run our due diligence get a better insight into a read mhm so there's no secret the secret is be ex not on on the data and the insights from the data and and inut some of the strategy that that will make the mathematics work um so turning to Dr kareim so you mentioned that you've done completed 15 bio transactions to the far Asia and and how are your portfolio companies right now embracing AI in in their business operations and any advice advice that you would give from a shareholder perspective to them I think uh you have to embrace AI technology uh it will accelerate the growth of our companies we're using it very judiciously we've been using AI for 3 years way before CH GPT has been launched I'll give you an example we're invested in the world's largest revenue cycle management platform we help Hospital and Clinics build insurance companies we are processing per year 300,000 claims with the use of AI and software that helps us fill those claims we're processing now 3 million per year so it allowed us to increase our productivity by 10x we have 3,000 coders in Asia helping us process those claims when we're doing 300,000 if I was increasing the number of coders without technology at need 30,000 coders to process the 3 million claims but by using Ai and software our productivity is exploding without adding head count so that open our eyes essentially and this company we increase profitability by 5x by leveraging technology and AI great and and you um golf um golf C capital is is one of the largest PE funds in the region and you focus a lot on sustainable Investments um I think many investors globally have been struggling to find the right balance between sustainability and ability to generate return so do you think China can present this unique opportunity where you can find a wingwing I mean winwing means the being to achieve sustainable and fast growth at the same time uh I think you can do good and do well at the same time we're big investor in sustainability actually one of our best investments is in water water dis anization water treatment we bought the leader in the Gulf we took it to India Indonesia then we bought the leader in China we built 10 big uh water plants sewage treatment plants in uh China and our profitability increased by 10x and we're able to sell that business to Fon and Mitsubishi and that was a great experiment because you're Del delivering clean water across imer markets but you're also doing great returns so it shows it's not a charity game when you're investing sustainability you can generate serious returns especially in China great you can do good and do well at the same time so um Ethan you mentioned that RT capital is a multi strategy um as a management firm and and also a couple of um you also mentioned that the valuation right now is is very cheap and attractive in China also a lot of companies are under right now under distressed conditions so can you share with us a little bit more insights on the credit the the credit sectors the private credit markets and and and how are you approaching this investment philosophy in China yeah sure for our spor situation fund we partner with uh one of the largest MPL uh stay manager in China so uh we have some unique assess to the in terms of information in terms of Market assets uh for example we could buy some distress long from from China from the commercial bank with our unique Channel and um I I just mentioned the the tumble of the popular Market in China uh is already very serious um a lot of developers has default and going to taking the the the Landers they are taking the the legal actions but in the meantime it also incre some very good opportunities because the the depth we kep acquire we at a very very low very attractive um price and for for our company that we are we are quite specialized in the restructuring and taking the legal actions we acquire the loan and we um account for a a decent amount of the percentage of the loans um issued by the companies and then we can we can negotiate the company and actually also support the companies to go through the bad time so if we can buy the long at a very very low price through one to two years is the the company can uh recover from the cash flow that we already can easily um get back the the the cost that we invest so in the coming 3 four years all the extra cash that we can get back will be the will be the profit and also I would like to share there's a three areas that we see for our special situation investment uh we we see some good opportunities first is the um some some uh very uh residential project locate in tier1 City at a very prime location that the developer uh have lack of capital to De develop that we can support them to further develop and become the equity shareholders into those project and second is the is the distress loan I just mentioned and the third um what still the the structural financing that because because the the asset price has come down by 40 50% now the valuation become much more reasonable if we still put the 50 to 70% LTV that's the the downside is H is actually is is actually very low the the safety net is very high from our perspective and we can still charge a 10 to 12% interest rate pressed upside so these are opportunities uh very attractive to us right credit is definitely a strategy that you can play particularly in an economy of structural reform or structural changes so as long as you play it right and Leo thank you for for your interpretation on the policies but the sharp question is how is that going to reflect in your own investment strategies on the sectors pics on the stock picks um how do you think green will take and and capitalize on opportunities in in the capital markets a good question thank you um in Greenwoods we call ourself a fundamental investor so we make decision based on fundamental change uh for example after the end of September we have already seen some numbers change uh the first tier city is uh uh property transaction volume actually uh rebound two to three times uh year over year this number and also we observed the property price civilized uh actually uh last one or two years the property selling price uh dropped from Peak uh around 30% but now we see the transaction volume rebound and also the uh selling price stabilized and even a little bit uh pick up uh that's one fundamental uh another thing is we find out uh it is a very clear Trend uh now younger generation spending more on uh we call experience uh self entertainment consumption rather than to buy uh uh property to spend on some uh long-term investment uh they try to entertains uh such as buy some small and nice uh Goods uh spend a lot on the uh travel and other experience even to buy a very expensive uh uh concert ticket uh for themselves so uh actually we we find out different Trends and uh uh try to uh allocate in the this different Trend to find a uh specific company and then another very interesting trend is now we find out less competition between uh several sectors so the uh industry leader now even have better margin compared with three years ago great we we talk a lot about the different investment opportunities in different Industries and asset classes I'm going to to close this panel with two actually rapid fire questions so so I'm going to start with Dr kareim and everyone got the same thing so um if you have to name one top investment thesis for next year what would it be for you and if we have to predict the capital Market's performance in China for next year what would that number be in your mind I think fch is very exciting for us we're very invested in the space we're moving towards the cashless economy here in the gulf like it happened in China and that trend is a mega trend for the next 10 years and in terms of uh growth in China we had spoken about that and my view with economic stimulus will be 35% growth increase in the index next year and without that it'll be probably single digit so that was the most optimistic view I've ever heard I we heard different Brokers have different ranges but 35 is definitely something that we would look to anticipate and Le how about you I give the number firstly uh I think the index had the potential to grow up uh 20% plus and uh two area we think may be uh quite surprise uh uh for us one is uh maybe uh Chinese tech company will develop very good model for AI application in 202 that's a very uh surprising uh we can wait and see another trend is uh I think next year maybe Chinese EV will sell to lot of uh other countries and uh maybe one car they sell in other countries equal to three or four cars sell in China the problem in terms of yeah so technology and renewable energy EV cars in that sense and with the capital markets above 20% growth so Ethan what's your guess um we it's very simple just long China equities and we see uh we we Echo the whe that Leo mention we see 20 to 30% upside for example you see the hand index is still under is still below uh 20,000 um we think that the the the peak of I mean the the the potential upside will be 20 to 30% next year because the China equities as very under owned by the Global Investors good and Sean with your very deep fundamental analysis yeah so for us the main theme for us we're looking at a lot of AI consumer driven uh theme we think a lot of that has not priced in it's probably on the hardware side but software especially on the data side there's a lot of opportunity that's where we're focusing on in terms of the upside to be honest we don't predict the index since we're very bottom up stock selection we wouldn't know where the index would go but for example if we look at our position we think the top five position within our fund our Target is at least 2x in three years great well thank you very much we're going to end this panel but I think you all got Priceless lessons from our Insider investors in China and top ideas and and the market prediction for next year so hope you all get good luck for next year thank you [Music]