I have long held the view that an analyst’s experience of researching funds would benefit significantly if it were complemented by ‘bottom-up’ research in action – namely, watching fund managers conduct company meetings, understanding how they interact with companies and hearing their views immediately following these visits and then spending time experiencing their network of contacts, including companies, brokers etc. This was confirmed and validated by my recent trip to Asia in the company of Neptune, providing one of the most interesting and insightful experiences I have had to date.
It was fascinating to witness the lines of questioning by Neptune in different meetings and to hear them summarise their views afterwards. Their objectives for such a trip were clear: in the first instance, to meet with the companies they are invested in to verify that their investment thesis remains intact. In addition to this, they look to hold meetings with potential investment opportunities and to use meetings with other companies and contacts to verify their top-down views for the region and the various sectors of the market. These goals were handsomely met during the visit and it was perhaps especially instructive to hear their thoughts on stocks they don’t own and are unlikely to do so, with a number of softer issues being of some concern to them at times.
Thinking about top-down themes in China, one theme from all companies, when asked about cost pressures, was increasing wage costs. This ties into the authorities’ aim of raising the consumption share of the economy, as the wage share of national income in China is significantly less than in many other countries. The desire to reduce levels of inequality in the country, which have apparently risen substantially since 1980, is also focused on the significant geographical disparities through projects such as improving and installing infrastructure – this requires investors to reconsider the impact of companies’ geographical locations.
To join the conversation on the OBSR blog, click here.
By Ruli Viljoen