Vivian Lin Thurston’s China-focused equity fund is down more than 15% this year, while the broader market is barely there. She is confident that a stimulus-fueled turnaround is imminent.
“The market will recover,” the fund manager at Chicago-based William Blair Investment Management said in an interview. “When this stimulus materializes and begins to trickle down to the real economy, the macro data will show it and the stock market [re-rating] will follow.”
Investors should be more patient with China’s post-pandemic recovery as it takes time for economic stimulus packages to materialize and restore confidence, while policymakers have taken steps to break the recent downward spiral following efforts to ease borrowing costs and inject more liquidity into the system. .
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Vivian Lin Thurston, Partner and Fund Manager at William Blair Investment Management. Photo: Document alt=Vivian Lin Thurston, partner and fund manager at William Blair Investment Management. Picture: Document>
China’s central bank could cut prime lending rates to the monthly level later this week, some strategists say, following moves to cut a key rate last week amid shrinking manufacturing and exports. Revenues in the real estate sector fell 13% last month, according to a report from Goldman Sachs.
Thurston co-manages the US$68 million China A-shares Growth Fund, whose top 10 holdings as of May 31 included Kweichow Moutai, Contemporary Amperex and China Tourism Group Duty Free. She also helps manage the $756 million Emerging Markets Growth Fund, which has gained 7.8% this year from bets including chipmaker TSMC, Tencent, Samsung Electronics and Alibaba Group Holding.
China was a bit complacent until recent moves to revive the faltering economic recovery, Thurston said. Photo: Reuters alt=China was a bit complacent until recent moves to revive the faltering economic recovery, Thurston said. Photo: Reuters>
Thurston, who studied at Peking University, has worked at China Agribusiness Development Trust and Investment Corp, developer China Vanke and UBS Global Asset Management, among others. She joined William Blair in 2015.
Stocks in the MSCI China Index are trading at 10.7 times their 12-month forward earnings, compared with an average of 12.9 times over the past 10 years, according to Bloomberg data. Thurston said a revaluation alone would offer the market a 20% upside, while the recovery in earnings would provide an additional boost.
Shares in the CSI 300 index reached 14.2 times forward earnings versus a 10-year average of 14.8 times. The comparable ratios for members of the Hang Seng index are 11.2 times and 11.8 times.
To be sure, the investment capacity of the Chinese market remains a sore spot as geopolitical tensions remain high as the scars of the tech sector crackdown have not fully healed, Thurston said. But China will likely be more consistent over the next two to three years to focus on “healthier growth”, she added.
“If there is a better than expected recovery, I think consumers [staples] remains a very good address, [which is] also in line with our longer-term view of the attractiveness of the investment theme,” she said. Semiconductors, higher manufacturing and green energy related themes” are also his favorite sectors.
Thurston’s view contrasted with a less bullish take from Asian fund managers polled by Bank of America this month, in which a third of 166 respondents believed Chinese stocks could lose the entire ‘reopening book’ rally. and re-test the lows in October.
The CSI 300 index lost 1.1% in value this year through June 16 in U.S. dollars, behind a 15.3% gain in the S&P 500 index of U.S. stocks and a 19.8% advance in the Nikkei 225 index in Japan.
Foreign investors reduced their allocation to China and turned to other markets in the region such as Japan. They sold 61 billion yuan ($8.5 billion) worth of onshore shares this quarter, compared with $27 billion in net purchases in the first three months of 2023, according to Stock Connect data.
“When the re-opening of the recovery hasn’t been as strong as expected, it’s basically narrowed to a very, very low level, which I think is an overreaction,” Thurston said.
“I feel like China has been a little too complacent. [before] they started lowering rates. The most important thing they need to do is stabilize the markets and then find incentives to [end] the vicious circle.”
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice journal on China and Asia for over a century. For more SCMP stories, please explore the SCMP app or visit the SCMP Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
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