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Thriving on Greater China’s Fundamentals


THRIVING ON GREATER CHINA’S FUNDAMENTALS

jacky-choi
Jacky Choi
Chief Investment Officer
Zeal Asset Management

Established less than 10 years ago, Zeal Asset Management Limited already boasts a global clientele and numerous prestigious accolades in recognition of its value-oriented investment approach in the Greater China region. With an investment philosophy founded on rigorous fundamental research and bottom-up stock-picking, the boutique firm won this year’s Best-in-Class House Award in Equity Long/Short, while its Chief Investment Officer Jacky Choi won the Manager of the Year title in the Greater China Equity category. We talked to Jacky about the team’s investment success and where the China market is heading next.

BENCHMARK (BM): A highly concentrated investment approach, as in your case (usually with 20-30 long holdings and 10- 20 short holdings), calls for high-conviction ideas. How do you generate these ideas? Can you tell us your stop-loss policy?
Jacky Choi (JC): Right! Since each of the securities in our portfolio is given significant weighting, all our high-conviction ideas must be vindicated by in-depth research to be included in our portfolios. At any point in time, there are over 200 stocks being closely and actively monitored by our investment team. We have a comprehensive understanding of the businesses and management of these companies. Each of our convictions is built on many years of research, and we only execute buying decisions when the prices are attractive.
We perform quantitative screening regularly to initiate new coverage ideas. Parameters of this screening include balance sheet items, profit and loss items, and market-related items, such as sudden price movement or volume pickup. To complete the idea generation process, we also adopt qualitative methods to source ideas. After going through this process, if we find a high-conviction security to be significantly over- or undervalued, the security will be included in our “stock idea pool,” from which our fund managers source candidates to be included in their funds.
Setting loss alerts is imperative to managing highly concentrated portfolios. Instead of a hard stop-loss rule – which often leads to the premature exit from positions in volatile markets – we have loss alerts set up to flare big price movements. When an alert is triggered, the investment case in question is reviewed independently by the original idea generator and another member of the investment team so that appropriate actions can be taken if necessary.
BM: Would you say that your long/ short strategy places greater emphasis on protecting downside than capturing upside potential? What is the rationale behind this strategy?
JC: Not exactly. We would say that our emphasis is to capture the opportunities on both the long and short sides while taking a more pro-active approach to downside protection against market beta, thereby achieving superior risk-adjusted returns. We give equal weight to mining upside potential and protecting against the downside: The idea is to strike a balance between the two. In our long/short strategy, we aim to provide our investors with a relatively stable stream of returns year after year.
The rationale behind this strategy lies in the fact that China is a relatively inefficient market and that there is a large performance gap between the best- and worst-performing companies. These market inefficiencies enable us to capture alpha on both the long and short sides. Most of our trades are not meant to capture relative returns as pair trades but to generate positive alpha on both the long and short books.
BM: In the China market, what tailwinds should we expect in 2018?
JC: A major catalyst we see in the China market is the comprehensive transformation of its economy. For example, China’s supply side reform, which is seeing initial success, is expected to make further steady progress. China’s economy has undergone a period of reflation since 2016, largely due to the impact of supply-side reform. As corporate profitability improves, the quality of bank assets is showing signs of improvement too. From a social perspective, the reduction in overcapacity is leading to better air quality, which in turn amasses greater public support for the supply-side reform.
Another catalyst we see is the speeding up of state-owned enterprise (SOE) reforms in 2018 and beyond. We believe that the reform will gradually shift the focus of SOEs from scale and top-line expansion to profitability. When the SOE reform gains momentum, both Hang Seng China Enterprises Index and Shanghai Stock Exchange Composite Index are bound for further re-rating given their currently undemanding valuations. We expect the reforms to lay a solid foundation for China’s continuous economic recovery in 2018. BM

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宏揚大中華區價值投資

jacky-choi

首席投資總監蔡雅頌
行健資產管理

立不足十年的行健資產管理有限公司,於大中華區落實以價值為本的投資理念, 除得到各地客戶認同,更加是屢獲殊榮。以嚴謹的研究及自下而上的揀選股票方式為基礎,行健於今年的大獎中,在「另類投資-長/ 短倉股票策略」類別榮獲「最佳基金公司」獎項,其首席投資總監蔡雅頌更摘下「大中華股票」組別的年度最佳基金經理。蔡雅頌不單分享了團隊的成功要素,更暢談來年投資內地市場的策略。

《指標》:您的高度集中投資理念(通常有20-30 隻長倉及10-20隻短倉股票),需要堅定的選股意念。為甚麼會有這樣的構思?可否談談您的止蝕方針?
蔡雅頌: 對的。由於我們的投資組合中每隻股票都佔相當權重,我們對每個投資的信心,都是以嚴謹和深入的研究作支持。無論任何時候,我們的投資團隊都緊密監察逾200隻股票,並對其業務及管理團隊有全面的了解。我們對這些股票均累積了多年的研究,當估值吸引時,我們便會行使買入的決定。
我們定期進行定量篩選以發掘新投資標的。篩選的準則包括資產報表、損益表及市場相關事件,例如價格突然波動或成交量增加。此外,我們亦會採取定性方法尋找新投資機會。經過此等過程後,如果我們確信一些證券價格明顯被嚴重高估或低估,我們便會將該證券放進「股票池」,讓基金經理將從中挑選以納入基金。建立虧損警告對於管理高度集中的投資組合可謂不可或缺。訂下硬性的止蝕規則很容易導致我們被迫在波動的市場環境下過早賣出投資。取而代之,我們設立了虧損警告以標示股價的大幅波動。一旦警告發出,該項投資的發起人及投資團隊中的另一員將對該項證券進行獨立檢討,若有需要,便可即時採取適切行動。
《指標》:您會否認同您的長短倉策略着眼下行保護多於捉緊上行潛力?可否談談實行此策略的因由?
蔡雅頌:不太認同。我們所重視的是在把握長倉及短倉機會的同時,積極就市場風險作下行保護,從而獲得優越的風險調整後回報。換言而之,我們對捉緊上行潛力及下行保護同樣重視,重點是在兩者之間取得平衡。就長短倉策略而言,我們致力為投資者提供年復年的穩定回報。
採取此策略的原因是:內地是個相對效率較低的市場,而表現最佳及最差的公司,業績南轅北轍,造就了同時獲取長倉及短倉回報的機遇。我們大部分的投資並非旨在獲取相對回報,而是於長倉及短倉均可錄得正面收益。
《指標》:我們應於2018年展望內地市場會出現甚麼有利因素?
蔡雅頌:我們在中國市場看到的一個主要催化劑是經濟的全面轉型。例如,中國的供給側改革,這項改革已經看到初步成功,並預計將進一步穩步推進。中國經濟自2016年以來經歷了一段時間的再通脹,主要是由於供給側改革的成果。隨著企業盈利能力的提高,銀行資產的質素也呈現出改善的跡象。從社會角度來看,化解過剩產能使得空氣質素改善,從而加大了公眾對供給側改革的支持力度。
我們看到的另一個催化劑是國有企業在2018年及繼後的改革將加速。我們認為,改革將把國有企業的側重點逐漸從規模擴張及收入增長轉向盈利能力。國企改革勢頭良好時,目前估值不高的恆生中國企業指數及上海證券交易所綜合指數,將有望獲得進一步的重新評級。我們預計上述兩項改革將為2018年中國經濟持續復甦打下堅實的基礎。BM

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