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Magazine Issues » July-August 2022

China Roundtable: Has China become uninvestable?

Many W-shaped recoveries
Each manager handles and exploits volatility differently depending on their portfolio strategies. Whether they ignore the worst of the market swings, or buy into the volatility, active investment appears to be returning.

Tea noted: “Multiples are probably at the trough, in our view, because we have already seen a number of companies dropping 40%, 50%, mainly in the tech space. We do not necessarily expect a V-shaped recovery like we observed back in 2020, for example, but we probably expect many W-shaped recoveries.

“We probably won’t wait for the bottom to be reached for our portfolios because, firstly, it’s hard to time the market, and secondly, by the time you reach the bottom, people will already start to come back to those names and add more to reinforce their positions. It will be critical for active asset managers to focus on companies with strong fundamentals [and] strong pricing power. They would include those who have already seen a big drop in valuation and present a bargain price.

“And if those names are also less subject to higher geopolitical risk, we will probably look into them more. The idea is to make sure that we reduce the risk in our portfolio.”

The second factor, Tea said, is earnings. After a difficult start to the year, investors now have better visibility. Since April the Covid situation has slightly improved and there is also better visibility on downward earnings revisions. “We are probably already halfway through it, [meaning] that we might see an earnings rebound for the second half of this year.”

She added: “The idea is to continue to reduce the risk in the portfolio. However, if we see opportunities, especially in our high-conviction names, we will consolidate our top holdings and also add new names at very good bargain prices.”