Managers’ Top Picks That Aren’t Chinese Tech

Enthusiasm for best-known ‘ATMJ’ stocks was nipped by negative news flow since late 2020. What else are fund managers buying?

Kate Lin, CAIA 17 June, 2021 | 8:00
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Choosing Your Tea

 

Chinese tech saw a pullback following stricter regulatory guidance on anti-competition behaviors. In the broader Greater China equity universe, there are more equity ideas than tech. There are five medalist Greater China Equity funds available for sale in Hong Kong. Their portfolio typically invests in companies from the mainland of China, Hong Kong and Taiwan. They are:

Medalist Gr Chn Mgr

All the above medalist funds hold Taiwan Semiconductor Manufacturing Co. (2330) with a weighting of at least 4%. Particularly, JPM Greater China Fund, managed by Howard Wang and Rebecca Jiang, has made TSMC taking 9% of the portfolio weight for the past eight quarters. The wide-moat chip foundry now represents a 20% discount to its fair value.

Picks from Gr Chn Mgr

Next is AIA Group (01299), trading around its fair value, with all except JPM’s portfolio owning the insurer in the top 10. Insurers generally hold up better than other sectors in a rising interest-rate environment as they benefit from higher yields on their investment portfolios. This has been the case for the start of 2021.

Morningstar analysts expect a recovery of AIA’s business to take longer. The company is expected to remain outstanding in its differentiated distribution, high operating efficiency and solid position as a leading life insurer for wealthy customers in mainland China.

A similar financials play is China Merchants Bank (03968), which is viewed as one of the best-positioned banks to capture the growth of Chinese wealth and demand for private banking services, according to Morningstar. The bank currently enjoys a strong premium retail customer base, and this is the key to capture the quickening growth in fee-based income.

Techtronics Industries (00669) produces cordless power tools under the brands of Ryobi and Milwaukee. Dave Love from Toronto-based 1832 Asset Management LP who previously talked to Morningstar Canada unveals that Techtronics is one of his favorite stock picks outside of the US. He finds that the company maintains high standard of their tools and technology, persisting the ‘first mover’ advantages in the cordless tool field. Thus, client ‘stickiness’ is also enhanced as users are loyal to its unique battery system.

Li Ning (02331), which sells athletic apparel through a network of almost 7,000 stores, was also on the list.

Over the eventful YTD period, the managers from the five medalist funds add a total of 13 new names to the top ten list since the end of 2020. New China Picks

 

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About Author

Kate Lin, CAIA

Kate Lin, CAIA  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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