China wants its tech companies to flourish rather than flounder as market mistakes create value, JPMorgan fund says
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
"The Chinese government's track record confirms that they would like to see their leading, high tech, most innovative companies flourish rather than flounder," Oliver Cox, who co-manages the US$1.14 billion Pacific Technology Fund, said in an interview. "The recent correction has only made those stocks with outstanding long-term growth prospects even more attractive."
Cox's fund has prospered 111 per cent since May 2019 despite some initial wobbles, while the MSCI World Information Technology Index gained 84 per cent in the same period.
Oliver Cox, Hong Kong-based co-manager of JPMorgan's Pacific Technology Fund alt=Oliver Cox, Hong Kong-based co-manager of JPMorgan's Pacific Technology Fund>
Regarding the US-China technology war, Cox said the "localisation" of research spending programmes to improve China's ability to compete in areas like semiconductors is now proving to be beneficial to a range of companies inside and outside the country.
"This is a key reason why, as I think has been the case since 2018, viewing China-US tensions as negative for tech is the wrong approach and too simplistic," he added.
While the Pacific Technology Fund is invested in American depositary shares of Chinese companies, Cox said it only favoured higher quality holdings in larger companies to mitigate the risk of them being kicked out of US exchanges because of auditing and compliance rules.
The Pacific Technology Fund allocated 53 per cent of its money in China, 21 per cent in Japan and just under 10 per cent in South Korea, according to data published by fund tracker Morningstar. It owned stakes in Meituan, Kingsoft Corp, Tencent and Kingdee International Software among its top 10 holdings as of March 31.
Singapore-based Sea Ltd, Samsung Electronics, Lasertec Corp, SK Hynix, Recruit Holdings, and Taiwan Semiconductor Manufacturing Corp were also on the top list.
The fund's 82 per cent gain in 2020 outstripped a 44 per cent advance in the MSCI World Information Technology Index. Over a five-year period, however, its annualised gain of 25.5 per cent trailed the index's 28.4 per cent payback.
"As a long-only fund, we are much more focused on generating strong positive returns over the long term, rather than hedging short-term downside risks," Cox said. "That's why this fund has a strong bias towards the leading companies in the tech space, with the best growth prospects and therefore greatest share price upside potential."
The fund invested in the Kuaishou Technology listing and continue to watch tech IPOs closely. Thematically, it sees the best opportunities in enterprise software, e-commerce, gaming and manufacturing leaders.
"Finding the next technology winners of the future is a key focus of our research," Cox said, given a very diverse IPO pipeline around the region at the moment.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.
