Optimistic on China
Asset management veteran Cheah Cheng Hye began his career as a financial journalist, working in Hong Kong and Malaysia in the 1970s, before making the move towards becoming a securities trader the following decade.
He gave up a well-paid job at a brokerage firm in 1993 to become the founder of investment firm Value Partners in Hong Kong. The boutique fund house made its mark in value investing before breaking into the foreign fund houses-denominated asset management market.
Cheah’s unwavering optimistic view on China has allowed the company to ride on the country’s “economic miracle” over the past three decades.
And with Value Partners having become one of Asia Pacific’s leading asset managers with a consistent market-beating track record over the years, Cheah’s vision and business success has earned him Asia Asset Management’s (AAM) 2023 Best of the Best Lifetime Achievement Award.
Value Partners has delivered an average compound annual growth rate of 12.7% (as of March) for its investors since its inception. “Our performance is way better than the benchmark Hang Seng Index,” Cheah says in an interview with AAM.
He also recalls the tough market environment in the early 1990s when he started his business.
“Investors didn’t trust local brands. They thought local players were easily prone to bad practices,” he says. “The [Hong Kong] market was dominated by foreign players at that time, and local fund houses had almost no chance of winning market shares.”
With investors’ foreign bias, Cheah came up with a so-called “clean hand” campaign, which required his staff not to do “anything strange that may lose investors trust”.
The company’s emphasis on good practice and fundamental analysis eventually paid off, outplaying international rivals to win business from Hong Kong family offices in the early days.
Many local managers failed to survive when competing head-to-head with international managers. But Cheah believes his optimistic character and strong fighting spirit were key to navigating Value Partners through the challenging market environment.
From a strategy perspective, Cheah defines value investing as “the right business run by the right people at the right price”. He believes a fundamental, alpha generation approach is very important for the company to explore undervalued investment opportunities.
China market
Value Partners made its foray into the China offshore market in 2009. Today, China-centric strategies have become the company’s cash cow, accounting for almost half of its overall revenue.
Although the world’s second largest economy dealt a blow with the government’s stringent Covid control and regulatory crackdown on individual sectors last year, Cheah still has high hopes for the market’s long-term outlook.
“I am very optimistic about the asset management industry in China,” Cheah says, adding that the country’s persistently low interest rate will drive individuals to allocate more investments to mutual fund products.
He predicts that China’s asset management market will grow at 9.5% in compound annual growth rate in assets under management, and from 9% to 9.5% in revenues by 2030. “China will still be the fastest growing [asset management] market globally and we want to be part of it,” says Cheah.
And while many international managers remain skeptical on China in the wake of the regulatory clampdown and property market bubbles in 2022, Cheah considers the cautious sentiment as an opportunity for the company to take advantage of the Mainland’s economic recovery.
“We’re looking to [further] expand our footprint in China and we have the advantage,” Cheah says. “As a Hong Kong company, we can connect the China market with overseas markets with our fully-fledged infrastructure that includes back office and administration services.”
He also points out that the Mainland market has become less reliant on foreign investors.
Total market capitalisation of domestically and overseas listed Mainland companies is currently around US$16 trillion, about $1.5 trillion of which is held by foreign investors, with the vast majority owned by Mainland investors. As such, Cheah says, it’s not a “life-and-death” issue for China, even if foreign investors dial down their allocation to China stocks.
Looking forward, he says Value Partners will also continue to expand its coverage within Asia Pacific and diversify its product line-up into various asset classes including inflation hedging strategies such as gold and agriculture, as well as ASEAN mid- and small-cap approaches.