China equity investment – Every crisis creates opportunities
How can active managers navigate challenging times while consistently generating long-term results?
16 Jul 2020 | 
Frank Ding, FountainCap CIO and chairman
Frank Ding, FountainCap CIO and chairman

History will likely look back on 2020 and deem it as the year that started a new era. Not only has the pandemic impacted everyone personally and socially, it has also altered the dynamics of the global economy: from accelerating a digitalized lifestyle and changing consumption behaviours to restructuring global value chains and redefining trade relations. Markets seemingly have already moved on from the pandemic and posted a dramatic rebound in Q2 after an equally dramatic drop in Q1. Despite the market rallies, underlying growth is nevertheless uneven across industries. How can an active manager navigate these challenging times while consistently generating long-term results?

China is a stock picker’s market

The past decade (2010 – 2019) was extraordinary for markets with almost every market rising substantially. The US led the charge in this rally with the Nasdaq rising 296%, driven by mega-market cap FAANG stocks and, to a certain extent, the rise of passive ETF investing. However, China markets substantially underperformed during the same period (the Hang Seng Index gained only a total of 28% while the Shanghai Composite fell 6.9%). Investing in a China index would not have paid off.

Interestingly, however, the number of stocks that have generated 5-times or even 10-times return over the past decade have dramatically increased. Ever since China entered the WTO in late 2001, many competitive Chinese private-sector companies emerged. Looking solely at companies that have generated 10-times return (assuming the names were held over the past decade), at least 20 names with over US$3 billion in market cap can be identified. 

"Truly long-term focus, bottom-up fundamental research, and a disciplined investment approach are the key ingredients to consistently generate superior long-term investment results", says Frank Ding, FountainCap's CIO and chairman.

China today continues its opening-up and reform progress, and the fundamental structural change taking place is accelerating the growth of the private sector. The recent comprehensive guideline released by the government calling for market reforms in five areas (land, labour, technological knowledge, capital, data) will likely underpin a new era for China and drive future economic growth. We believe any market-oriented reform will provide long-term dividends for China’s economy and create better investment opportunities. Nevertheless, China equity markets remain highly inefficient and continue to be a stock picker’s market.

Every crisis creates opportunities. The current situation (with geopolitical crises and a global pandemic) is no different. Conducting in-depth fundamental research allows for the discovery of high-quality companies that can be invested in over the long term.

About FountainCap Research & Investment (Hong Kong) Co., Ltd.

Founded in 2014, FountainCap is a long-only equity fund manager with an all China investment strategy that identifies and invests in listed companies that will substantially benefit from China’s transformation and on-going growth. Since inception, FountainCap has delivered consistent results for investors from around the world through its fundamental research and long-term investment philosophy. The company has won the The Asset magazine’s Triple A Awards for three consecutive years. Led by veteran China investor, Frank Ding, the investment team consists of sector/industry specialists with a combined China investment experience of over 60 years across seven global market cycles. Most associates within the company have diversified backgrounds and have studied in prestigious academic institutions around the world, and they are equipped with working experiences from renowned global financial institutions. The company aims to consistently generate superior long-term investment results and provide the best services to its clients. The company currently has over US$1 billion in assets under management.

Disclaimer: The Asset Awards recognize asset management companies that have built a comprehensive platform for investing across different asset classes to service the needs of institutional, corporate and retail clients. These companies consistently achieve above-benchmark performance and set the tone for innovation and industry practice, including ESG integration.

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