The recent actions by Beijing do not change the investment manager’s view on the country, as it believes that Chinese policy makers are focusing on achieving higher rates of growth from less investment, with the tougher regulations indicating a “move to stability”.
“There are numerous examples of sectors having been regulated in the past. I think we’re pretty confident in the view that there has been an overreaction, but it’s been exacerbated by a lack of communication by the Chinese side, and maybe a lack of knowledge amongst some foreign investors,” said Robert Horrocks, chief investment officer at Mathews Asia.
Currently, many Asian companies — and Chinese companies, in particular — are trading on substantial discounts of 20% to 30% price-to-earnings ratios of their global peers, as a result of investors’ concerns about recent regulation announcements.
They are, in market-cap terms, somewhere between one-third and one-tenth the size of their peers, and while they may not have the same opportunities to monetize, “they certainly have opportunities to grow in what is a healthy and profitable environment,” according to Horrocks.
Moreover, investors should look at the quality of each company, and also recognise that not every piece of governmental regulation is designed to hurt private enterprise.
“In our view it’s the opposite: they are looking to work in tandem with private enterprise. [Policy makers] know that private enterprise will, in most cases, deliver the best solution; they just want to guide them,” he said.
Horrocks believes that the Chinese government is acting as “both the champion of the consumer and also a supporter of private enterprise”.
For example, in the past, the healthcare sector in China has been hit by tougher regulations, which had an immediate negative impact on share prices. But, they soon recovered as the benefits of those actions became evident, according to Horrocks.
“Another example is the gaming industry where there were worries about the social impact of kids spending too much time in darkened rooms playing fantasy games, but the companies agreed with the self-regulation that they had to do, and then bounced back strongly,” he said.
Horrocks stressed that whenever people investment in any country, not just China, they have to take account of the regulatory environment. “It’s not just a risk— often it can be an opportunity as well.”
Matthews Asia is focused on finding the companies that can best navigate the obstacles while taking advantage of the opportunities, he said.
