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UBS AM says Tencent story only beginning

The example of Tencent shows that expensive valuation and great performance can co-exist, said Bin Shi, China equities strategies lead portfolio manager at UBS Asset Management.

The UBS China Opportunity Fund and UBS Greater China Fund, both co-managed by Shi, had Tencent as the top holding, accounting for almost 10% of each fund’s assets at the end of July.

“We aim to find companies that are or have the potential to be market leaders among the growth industries,” he said at a briefing last week.

“We need to avoid overpaying and judge a company by reasonable growth expectations, not a `blue-sky’ scenario.”

However, for some growth companies, the relatively high valuations are justified, he noted.

A prominent example is Tencent, which has grown nearly 270 times, or a compounded annual return of 58%, since listing in 2004.

“But from the beginning, its valuation was not cheap. Tencent is a platform-based company with sustainable growth, while most other game developers are product driven — their earnings depend on the launch of new products.

“Tencent’s full potential is still yet to unveil. At the moment, most of its revenue comes from the gaming side. Areas like advertising and payment services are still at the initial stage,” Shi said.

“Another growth point is internationalisation. Tencent has to go overseas if it wants to become a first-class tech company. Now it is still at the baby stage.”

In the onshore A-share market, he focuses more on blue-chips, which have reasonable growth coupled with attractive valuations.

Looking carefully at traditional industries, he said some companies could be found that have the potential to grow thourgh innovation. One example is Midea, a mainland home appliance maker that intends to develop automation processes after acquiring German robot maker Kuka in July.


FE data shows that Shi has performed better than the peer group composite over the last 10 years. 


The performance of the two funds over the past three years versus the MSCI China index.


Part of the Mark Allen Group.