15 standout quotes from UBS-AM at GCC 2021

On whether China’s A-share markets are overvalued

Investors should stay invested. The A-share market has, overall, done very well and some of the sectors have done even better. If you look at the overall market, valuations are just above the 10 year historical average so from that perspective it is not so overheated.

In the A-share market you are either hot or not. Some sectors are very hot, but other sectors did not participate as much. We believe we can still find long-term opportunities in those other not so hot sectors. So we are actively deploying our money into the A-share market at this point.

On China as a standalone asset class

If you look at China’s economy, it is the second largest economy in the world and bigger than Japan. The Japanese market is a separate asset class, so we expect China will be a separate asset class as well.

In the global physical economy China is already so significant, and we expect China will also be very significant in the global asset market as well.

So I think the issue about investing in China equities is not a matter of if, it’s a matter of when and how much.

On China’s commitment to meeting its carbon neutral objectives

When the Chinese government says something, they really mean it. For the carbon neutral targets, I think they have done a lot of calculations and work behind the scenes to make sure that this is something they can live up to. So I think they are very serious about this target and this most likely means more support for electric vehicles and renewable energy.

On US/China tensions

From a hedge fund perspective, US/China tension creates volatility and that’s good for us.

On opportunities in China’s A-share markets

For China A-shares, 70% of the companies in the market are covered by less than three analysts, that’s a significantly higher percentage than in other more developed markets…… Low coverage also means much higher dispersion, or higher volatility of the constituents of the market. Simply put, that’s the holy grail for alpha generation and allows you to find opportunities on both the long and the short side.

Turnover levels in China are off the charts compared to developed markets. That turnover is really driven by the large number of retail investors in the market, which provides hedge fund investors with good entry and exit points, as well as the ability to trade around that turnover

On China’s anti-trust legislation

Let’s not forget that antitrust rules are not just China specific, we have seen them in the US and may see an acceleration with the Biden administration. Ultimately the tech wallet is not going away, it just may be distributed to other companies which, again, provides opportunities for new winners to emerge.

On opportunities for investors in China’s equity markets

I want to highlight that, after years of opening and reform, China is ready to offer alpha rather than just beta opportunities for global investors.

On China’s commitment to meeting its carbon neutral objectives

My confidence in the Chinese government’s commitment is partly backed by the confidence in the Chinese solar value chain.

In the last 10 years, China’s solar manufacturing industry accounted for an estimated 70-75% of new solar capacity globally and delivered a 90% cost reduction.

On China fixed income

In our confidence metrics we can see that these China fixed income assets are negatively correlated to the USD space, which is the ‘holy grail’ for any asset allocator.

Looking at our most recent changes amid the Covid-19 situation, we completely sold off our high-grade USD exposure in many of our solutions and moved into China CGBs because we also like the currency. We think the CNY (unhedged) currently offers value, and see further room for appreciation.

10-year CGBs are currently trading above 3%, so you are picking up between 300-400 basis points of additional return for what we consider to be a safe-haven asset.

On Chinese monetary policy in 2021

The rebound in the Chinese economy is already the most advanced. We have seen some measures that will likely mean the growth in the credit impulse will probably roll over.

However, we don’t expect interest rate hikes at this point and we have quite a stable outlook for the rates side of the bond market.

On investing in a world of low yields

Towards the end of 2020, it became an uphill battle to generate the kinds of things that clients want, i.e. total return, income, and inflation protection………What we have done is think differently and cast our net extremely wide to generate returns – and that has lead us to the East.

On the EM/DM distinction

Ultimately, what we are seeing in the developed markets now is similar to what we used to criticize emerging markets for in the past, such as the creation of huge amounts of debt and large-scale relaxation of fiscal policies. I think we are the point where people are starting to think very differently about how we see the world, and particularly about Asian fixed interest markets.

On China’s path to making the RMB a global reserve currency

China’s influence on the economic, financial, political, and military sphere will continue to grow and that will be reflected in increasing use of the RMB. I think also there will be increased use in the West of Asian and Chinese fixed interest as part of asset allocation.

On how to view Asia

The bigger problem that the West has is the increasing gap between the rich and the poor, and I think that will lead to increasingly volatile social situations that will drive increasingly extreme political decisions. So I think that is certainly a factor we need to take into account. Increasingly, from where we sit here, Asia looks a relative safe haven.

On the Chinese government’s three red lines policy:

China property is the key sector for the high yield asset class, and I think that over the next three-to-five years the three red lines policy will be positive for the sector. It will help to deleverage developers over the period and help them improve their financial discipline, which they were not really used to doing in the previous cycle.

Under the three red lines scheme developers have to report their financial situation to the regulators, and that’s important because they have to report ‘hidden’ off-balance sheet debt. It’s almost like the regulators have done the audit on behalf of credit analysts, so that’s a very big step forward for transparency around the sector.