Tap into the world’s fastest-growing markets by investing into high quality companies driving sustainable growth outcomes.

 

"I have been following the Chinese market for the last two to three decades. Based on my experience, the best time to invest is when everyone else thinks the market is bad."

Martin Lau

Meet the manager

A short insight into how Martin Lau, Managing Partner, thinks about life and investing.

About the strategy

A behind-the-scenes look at the investment philosophy for the Greater China investment strategy.

How we invest

 

Diversified and differentiated

The broad China, Hong Kong and Taiwan universe provides diversification, while bottom-up stock selection and high active share^ differentiates our portfolios from the benchmark index.

High conviction investments

A focused portfolio of 30 to 60 companies ensures that only the highest conviction investment ideas are included.

Integrated ESG analysis

ESG analysis, shareholder engagement and proxy voting is fully integrated into the investment process.

Investment themes

 

FSSA’s Greater China (China, Hong Kong and Taiwan) and China A-Share portfolios are built company by company from the bottom up, with little regard for index positioning. We are focused on growth in an absolute return* sense and construct portfolios of high quality companies with effective management teams, long-term, sustainable growth drivers and strong financials. 

Dominant consumer franchises

We believe dominant consumer franchises and brands should benefit from rising incomes and the premiumisation trend, and can offer good growth potential over the long term.

High quality financials

We believe banks and high quality financials should benefit from similar drivers as consumer businesses: demographics, rising incomes and urbanisation.

Rise in healthcare spending

China’s per capita spend on healthcare is still relatively low and has room to grow. Companies providing drugs and medical services should benefit from an increased focus on healthcare spending and wellbeing.

A connected and automated world

An increased focus on research and development should lead to technology champions in niche markets. Domestic component manufacturers could benefit from the trend towards localised production.

^ Active share is a measure of the percentage of stock holdings in a portfolio that differs from the benchmark
* Absolute return is the return that an asset achieves over a specified period

Case studies

 

We have been shareholders of China Resources Land (CR Land) for many years. We believe CR Land is a high quality, dominant business that should benefit from China’s structural trends such as improving demographics, rising incomes and urbanisation.

China Resources Land (CR Land) is 61% owned by China Resources Holdings (CR Group). CR Land is a state-owned enterprise, but as one of the oldest 'red-chips', it has a long history of operating commercially and to high standards. CR Land is also the tenth-largest developer in China.

At the end of 2018, CR Land had 51 malls in operation, with a total floor area of 92 million square feet. They have another 52 malls under development, with total space projected to double. Contrary to the experience of the West and despite high e-commerce penetration in China, the business has continued to see strong double-digit same-store-sales growth.

Although over the short term, the pandemic has clearly affected discretionary spending in China, we expect the recurrent income to grow in the next four years when the other malls in the pipeline are fully developed.

Mature malls generate healthy growth and decent returns

Rental income could double when malls in pipeline developed

Source: Company data, FSSA Investment Managers, as at 31 December 2020. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

We have been long-term shareholders of Midea Group. Midea Group is China’s largest home appliances company, with a comprehensive product portfolio that includes air conditioners, refrigerators, washing machines and small home appliances.

Midea is a dominant consumer franchise and we believe Midea is well-positioned to benefit from rising income levels and the premiumisation trend in China (as incomes rise, consumers demand better quality and more expensive products).

Midea’s strong emphasis on research and development have improved its product quality over the years; and its market share in most home appliance categories in China ranks it among the top three. Meanwhile, its acquisitions of Kuka (top 4 industrial robotics company) and Toshiba (Japanese premium brand home appliances) add new areas of growth, especially in areas such as logistics and industrials.

Market leader, gaining share FY2019

Industry share of domestic appliance market

Source: FactSet, Midea Annual Report 2019, FSSA Investment Managers, as at 30 June 2020. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

We have been shareholders in Tencent for more than 10 years, first purchasing a position in the company around two years after its IPO. Tencent is, in our view, one of the best companies to own in the Chinese internet space – a high quality business with a strong management team.

The technology giant is the largest social media network and online gaming company in China, with growing businesses in online advertising, cloud services and e-payments/e-commerce. Although Tencent is at an early stage of monetisation with the majority of revenue still from gaming, we believe that its revenue structure will change as consumers start to pay more for services such as videos and music and corporates start spending more on advertising.

In a more connected and automated world, Tencent has been a major beneficiary of the rise in everyday technology and ‘smart’ devices and continues to deliver high rates of growth on top of an already substantial base. After researching the company, we were impressed by the visionary management and were buoyed by their vision of the internet and entertainment. Governance standards are high and management is aligned with shareholders, via share ownership in the listed company.

Revenue by segment

Source: Company reports, FSSA Investment Managers, as at 31 December 2020. Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of FSSA Investment Managers’ portfolios at a certain point in time, and the holdings may change over time.

Insights

 

Read the latest investment insights on our strategies and ESG related investment issues from our specialist teams.