• 07/05/2016

Wang awes investors by sticking to his numbers: muddy Hong Kong, no problem

The Fundamental Principles of Investment with Shenzhen-Hong Kong Link

By Justin Lee
Alan Wang

With over US$3 billion under management, Principal’s Hong Kong Equity Fund has been honored as the “Best-in-Class – Hong Kong Equity” category, outperforming its peers over the one-, three- and five-year period, with returns underpinned by the manager’s fundamental, research-based bottom-up approach to stock selection.

Over the past 12 months, the global macro-economic environment has seen increased market turmoil, especially during the second half of 2016 when events, such as the United Kingdom European Union membership referendum (Brexit), the rapid decline in China’s forex reserves and Donald Trump’s victory in the US presidential election, all served to fuel market volatility.

Alan Wang, portfolio manager and head of Greater China Equity at Principal Global Investors (HK) said while some peers reacted in a knee-jerk manner to this volatility, Principal’s Hong Kong Equity Fund has continued to hold on our three investment principles.

“We focus on stocks with improving fundamentals, positive expectation gaps and attractive valuations. If you look at our investment portfolio profile quarter to quarter, this has never changed. Last year, we saw a global trend of anti-trade or nationalism. Under this situation, it is particularly difficult for China being a world factory and having benefited from global trade. So we have been adjusting the portfolio to adapt to this,” said Wang.

Benefit from Consumption

Wang believed that the Chinese authorities are likely to remain focusing on domestic consumption and fiscal spending to counterbalance a foreseeable fall in exports due to potential tariff change. Moreover, state-owned enterprises and supply-side reform will continue and will be useful in building confidence to deter further capital outflows.

“I believe Trump’s policy on a potential 45% tariff on China’s exports is not doable, at least on a large number of goods – just look at how many iPhones are shipped to the US from China and how many machines, shoes and clothes are made in China. We expect China’s government to promote more value-added services hard to be replaced, such as development in the IT, media sector, mobile games and maybe even domestic retail brands.  I think these will be good segments to focus on,” observed Wang.

Superior Stock Selection

According to Wang, three principles distinguish superior stocks: positive and sustainable fundamental change, investor expectation gaps and attractive relative valuations. Indeed, Wang and his team were able to benefit from market volatility to their advantage and managed to take profit when markets were at their peak and build positions in attractively valued stocks.

“We also continued to accumulate a position in stock within the transportation sector when it was at 0.4x book value, while the stock has already returned up to 40% this year. The result came after it became one of our top over-weighted holdings last year and we have been making these calls facilitated by our very powerful fundamental research tools,” he added.

Preferred Sectors

Among sectors, the Fund got the largest exposures to the stocks in financials, IT and consumer discretionary, all which have added value over the past 12 months. Wang expects Hong Kong financial stocks in banking and insurance to benefit from rising interest rates due to expanding margins, and believes that the IT, auto and retail sectors will take advantage of a rise in consumption. “A lot of investors are underweight in financials because of asset-quality reasons. However, asset quality has improved over the past year as overcapacity in some sectors has been addressed,” noted Wang.

In the IT sector, Wang focuses on the software sector, with robust mobile-game growth at multiples several times that of China’s GDP growth. “The stronger companies took advantage of this growth and invest in other opportunities such as cloud and advertising, and these segments are now growing at a faster pace than gaming revenue. In consumption, we like autos and the retail sector as we think consumption will increase as people spend more to improve their living standards,” concluded Wang.

A Global Research Platform

Wang also credited Principal’s Global Research Platform with playing a key role in the Fund’s out-performance. The platform is a group of 56 proprietary models, using complex fundamental factors and advanced quantitative screening to enhance efficiency in stocks selection. At the same time, the operational efficiency can also be enhanced for stock out-performance versus the benchmark.

“It was the first project I worked on when I joined Principal as an intern more than ten years ago. It works on the weekends and assigns each stock that we cover a rank of 1 to 100. Then every Monday morning the analysts have the tools to focus on companies that tend to outperform. This practice allows us to be more effective in our research and ensures we don’t waste time on companies that may under-perform. Although this doesn’t replace our job of selecting stocks, it arms us with an investment machine gun,” said Wang.

Turning to recent market developments, Wang believed that the launch of the Shenzhen-Hong Kong Stock-Trading Link in December 2016 would also be positive. Foreign investors can now access the Shenzhen market, which is known for its “New Economy” stocks, while Mainland Chinese retail flow into Hong Kong will now provide an additional source of liquidity, thus decreasing transaction costs for larger institutional investors such as Principal.

“Nevertheless, we will continue to focus on fundamentals and strive to deliver out-performance to our investors,” said Wang. BM



Justin Lee 撰文

擁有超過30億美元管理資產的信安香港股票基金今年獲頒「同級最佳 – 香港股票」大獎,表揚基金在過去的1年、3年和5年表現皆領先同儕,優勝表現源自基金經理著重基本面、以數據分析主導的由下而上選股策略。



王曦解釋:「我們主力投資於經營基調持續改善、投資預期存在正面落差,以及估值吸引的股票。 若仔細觀察每季的投資組合,你會發現這三大原則從未改變。作為世界工廠的中國,過往從環球貿易中得益不少,但去年反全球貿易及種族主義成為全球趨勢,對中國經濟尤其不利。故此,我們正對應此趨勢調整投資組合。」












「研究平台是我在十多年前加入信安當實習生時首個參與的項目。在周末休市的時間,我們將涉及的股票以1至100評級。分析師可利用這些工具集中留意有更大機會跑贏大市的股票。 這方式讓我們更有效地進行研究,並確保我們不會浪費時間在可能表現欠佳的公司上。雖然這平台不能取代我們的選股工作,但它猶如為我們配備『投資機關槍』。」王曦說。