Obviously you've been kind of backing this China rally for some time now it's finally seem to be sentiment turning around in a
positive way. How much upside could I see for Chinese stocks. Sure.
I think even after the pretty meaningful recovery from I would say quite depressed valuations from a few months back. So you
could take a step back on March 15th. The market hit a bottom in terms of valuations. At that time the market was trading on
eight point six times forward earnings. Now we're back up to about eleven times. And I think it's quite clear in terms of the
price movements over the past few months. And despite that we still think that the from a macro perspective China is
essentially on the right side of the equation when it comes to a number of macro concerns that investors are very focused on
right now. These concerns include number one. Growth. Now you think well growth momentum going into the next two quarters. We
think sequential growth is going to improve quite meaningfully from a low base in China whereas for the rest of the world seems
like growth momentum is going to moderate. So I think the growth differentials are going to open up between China and the rest of
the world. Secondly from a policy standpoint it's quite clear that China policy using is in motion. But again when you put
China in a global context while everyone else is essentially also China is tightening policy pretty aggressively. So I think
that growth and policy told when it's going to be in China's favor over the next six months.
Earnings growth is certainly going to be one had when I'm guessing given that people are still forecasting for a dramatic
slowdown this year. I am looking at CSI. Three hundred consensus earnings estimates is still around 17 percent. Is that still too
optimistic in your eyes. I think I think the answer is yes. So we've been arguing that
publicly for consensus earnings expectations so far this year. Consensus is just way too optimistic. So we've been arguing that
for this year as year on year growth should be at around 4 to 5 percent. And we've been holding that view for the past six
months. Now if you look at MSCI China in particular growth expectation has come down from 14 percent at the beginning of
the year to around 7 to 8 percent right now. So from that standpoint I think that's true of further downside risks to
earnings politically over the next few months. And we think that the earnings downward revision is likely to do very much in
motion. But having said that I go back to the point I mentioned earlier about valuations. We are now trading at eleven times
stupid or historical averages. And if we do get more policy catalysts to come through and growth improvement to to
materialize we think that still some moderate upside in terms of valuation recovery.
You're in the U.S.. You say you're finally able to have him face to face meetings with investors with clients and I mean you
mentioned about how there's a little bit more optimism offshore than what you're seeing at onshore in particular where turnover
or our margin lending is concerned at the moment. Why do you think positioning is still so light.
I mean clearly when I speak to you what's the investor's sentiment has improved quite meaningfully over the past few
months precisely for the macro reasons that I just talk about. But I
would say even though people talk more positively I think when you look at some objectively the points they all suggest that
investors are still pretty cautiously positioned in Chinese equities.
Mutual fund investors are still underway. Chinese equities by 400 basis points. Hedge fund investors they turned into first
time net buy in May after being a net seller for the 14 months before that. So we're starting to see some improvement in
allocation from the investors into Chinese equities. But overall I would say the position that we made is quite light but I think
it's improving. And one thing I would point out is that you today not Buffalo's West we're talking about roughly speaking
eight billion U.S. dollars of the inflows whereas for the rest of the region if we look at Korea Taiwan India we have seen
about 60 billion U.S. dollars for one that's selling. Well
what's your view on tech now. I mean it seems like tech has been one of the leading sectors that's driving a lot of this rally.
Is this kind of a new bull market that's forming in tech. Well we were doing a story about the CS and and startups that are
looking at this sector as that they're still quite uncertain about where this goes and where we just had this week. A lot of
headlines when it comes to live streaming. New guidelines. There are online pharma e-commerce also seeing a crackdown. What's
your take on tech now. I think overall speaking
the old back over arching overarching lots of factor here. We have to monitor is of course the rocketry tightening cycle. And
we've been arguing that the regulatory tightening cycle is going to improve going into 2020 too. And based on the developments
over the past few weeks seems like we're moving in that direction. And we have some proprietary indicators also
suggesting that the intensity level of record between tightening has turned to stone from previous restrictive level no back down
to pretty accommodative territory. So I think if that's the case we still think there's more room to go in terms of valuation
recovery for the TMT sector. So in terms of our recommendation we are overweight China Internet but within China.
Well we've also seen a big rally and brokerages consumption plays as well. How much conviction do you have in those sort of
areas of the market. I think on a relative basis we prefer manufacturing cohort when
it comes to reopening some proxies. So I guess the reasons why the two sectors that you just mentioned have done quite well is
primarily predicated on the optimism about trying to be open and recovery of aggregate demand. But again from a top line
standpoint we think got manufacturing cohorts including autos and industrials might be a better place for it. But still before
we opening opportunities. We're few months away from a party Congress. Is it too early to
even talk about it. But I was wondering historically what do you think. Are we likely to see a rally preplan. How do you position
around that. Well I mean if you look at the historical historical playbook I
would say is is quite optimistic and is quite positive narrative. So when we look at the past five cycles are you 25
years of the markets the equity markets both onshore and offshore. They tend to do quite well going into the party
Congress of three to six months before that. So I think right now it seems like we are in a sweet spot where really it's going
to improve policy. Easing is the emotion and you have that big political event coming up. So as I said I think a tactical set
up for Chinese equities looks pretty compelling from here.