Manager focus: Baillie Gifford Greater China
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Stefanie EschenbacherThe Chinese government's response to the global crisis means that the country can emerge faster and stronger than other parts of the world. In the view of Mike Gush, the manager of the Baillie Gifford Greater China fund, the country has re-emerged as one of the largest investment opportunities of our time.
China is still developing at a rapid rate, even, or especially, considering the backdrop of the crisis. Fundamentals such as urbanisation, high savings levels and infrastructure investment will continue to drive growth.
As the financial crisis started, the government introduced several measures to counter its effects: a massive stimulus package, counter-cyclical bank lending, interest rate cuts, lower export and bank reserve requirements.
The government has been proactive taken its stimulus measures in record time, Gush says. In a matter of weeks, the government changed its policies from trying to slow growth to expansion.
Gush says back in 2007, when housing and stockmarkets were overheated, the government “slammed the breaks” and started to regulate. Interest rates were up, reserve requirements became stricter and regulation on several industries tighter.
“Politics are not really an issue when investing in China,” Gush says. “Despite a lot of criticism, in terms of the crisis, the Chinese government has been managing the downturn a lot better than the West.” Having a single party system also means that can be introduced faster than in democratically ruled countries, where everything has to go through official channels.
“[The Chinese government] has a long-term view and is trying to develop the economy over a long-term,” Gush says. “[The Chinese] are industrialising faster than ever before. The scale and speed of what is happening is stunning.” Gush says the economy can and will continue to grow at double digit rates.
And this is where Baillie Gifford, which has been investing in the region for over a century, sees investment potential. In June, the asset manager opened its Greater China fund to the retail market after first opening for trading as an institutional product.
Gush says as things are improving and valuations look compelling, it was the right time to target the retail market too, especially after having built a three-year track record.
The fund, which is benchmarked against the MSCI Golden Dragon Index, invests in companies from mainland China, Taiwan and Hong Kong. About 50% of the portfolio is invested in the mainland, 30% in Taiwan and 20% in Hong Kong.
Gush and his co-manager, Richard Sneller, are bottom-up stockpickers. Although sector allocation is not a priority when making investment decisions, Gush says he finds many compelling opportunities in the technology and consumer stables sector. Whereas the portfolio is underweight in industrials, materials and utilities.
He says, there is a vast array of investment opportunities in China, a country of the scale of a continent. The fund holds a maximum of 3% in one company, usually with 30-50 individual stocks. Diversification is only one mean of risk control and the fund invests predominantly in large-caps.
There are significant market inefficiencies to be exploited - Gush calls it a “stockpicker’s paradise - while the quality and depth of the market is improving all time.
Moreover, the Taiwanese nationalist government has paved the way for better relations with the mainland. He says a greater political stability in both countries will benefit investors. For example, China will gain greater access to Taiwanese technology. At the same time, Taiwan will benefit from greater access to capital and China’s comparatively cheap labour force.
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