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Investec’s Kuhnert: the 'old' opportunity investors are missing in China

Investec’s Kuhnert: the 'old' opportunity investors are missing in China

China’s ‘new economy’ companies continue attracting investor flows but Investec’s Greg Kuhnert said many are missing out on opportunities that recently introduced environmental regulation is creating in its ‘old economy'.

The country’s push to combat its high pollution levels is having a knock-on effect on its ‘old economy’, groups involved mainly in manufacturing, by improving companies’ efficiency levels.

Speaking with Citywire Americas during Investec’s annual conference last month in Washington DC, the Citywire + rated manager said the new regulations are leading large manufacturing and industrial companies to raise their factory standards and is in turn leading to a consolidation within these industries.

‘There is money to be made in the old economy that people aren’t focusing on,' said the manager of the Investec GSF Asian Equity and All China Equity funds.

'There is better enforcement of environment regulation in China now and it’s a theme we’re playing in our portfolio.’ 

Cyclical stocks are the main benefactors of this new environment and among the companies he said are well positioned to take advantage are groups like China Shenway Energy and China Steel.

They are now offering better pricing power and profitability as they have had to streamline their businesses and make them more efficient and reduce their pollution levels to meet the new standards.

Another point many investors get wrong on China he says is the belief that there is an oversupply of housing.

‘On the whole, China is actually short of housing,’ he said. ‘Big cities area just getting bigger and there is a shortage of quality housing in China.’

The infrastructure industry, another ‘old economy’ sector, actually offers good investment opportunities with a  focus should be on China's first and second tier cities.

Online boom

The country’s ‘new economy’, mainly service and technology-focused companies, also forms an important part of Kuhnert’s China approach. 

He is finding some of the best growth stories in e-commerce.

‘[Today] China accounts for 40% of total e-commerce global business. Ten years ago it was 1%,' he said.

Tencent and Alibaba are two groups he is positive on, although he has recently reduced his allocation to Tencent as it became a bit expensive, he said.

The two firms' online payment systems, Tenpay and Alipay, now account for a large part of online transactions and their business model means they have revenue coming from many different sources.

Another group Kuhnert currently likes is Ping An.

‘It’s an insurer that is years ahead of others in automation and the use of AI [articificial intelligence] to handle claims, like auto accidents.’

One other recent addition he has made to his China portfolio is micro lender Qadian.

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