Wed, Jun 13, 2018 – 11:07 AM
[HONG KONG] China’s tech darling Tencent Holdings Ltd has lost US$71 billion in market value since January, but that’s not shaking the faith of one top money manager.
Caroline Maurer, head of greater China equities at BNP Paribas Asset Management, is keeping more than 9 per cent of assets invested in Tencent, across all funds allowed to hold the stock. That’s even after the Shenzhen-based company fell 12 per cent from a record set in January, buffeted by a global technology rout and concern over shrinking margins and a lack of new games.
To Ms Maurer, the bears are too short-sighted. Tencent and Alibaba Group Holding Ltd remain her top China Internet picks as smaller rivals won’t be able to achieve the rapid growth that those firms did in the past. Tencent’s WeChat app, for example, has more than one billion active users. And when you’re sitting on such a huge user base, it’s relatively easy to deliver the next “big hit”, be it in games, cloud-based services, payments or artificial intelligence, she said.
“I’m relaxed about it,” Ms Maurer, who oversees about US$1 billion, said of owning Tencent in the recent slump. “When you have a billion users, you just monetise it gradually. You don’t have to deliver all the earnings in a year.”
Tencent’s shares have soared over the past decade, more than doubling last year alone. By its record close on Jan 23, the company was valued at 51 times earnings. Even today, it trades at almost 12 times book value, with a market capitalisation of US$506 billion. The stock was little changed at HK$417.60 at 10.35am in Hong Kong on Wednesday.
“Things can get short-term expensive on just a few quarters,” Ms Maurer said in an interview in Hong Kong. “That’s fine,” she said. She says the game business is resilient to economic downturns, and there’s no point trying to guess when the next blockbuster will come. “I don’t see a significant change in the sustainability or viability” of Tencent’s business model, she said.
Ms Maurer oversees several funds for BNP Paribas Asset. They include the Parvest Equity China A-Shares Fund, which has beaten 99 per cent of peers over the past three years, according to data compiled by Bloomberg. Her Parvest China Classic Fund, for example, counts Tencent and Alibaba as its largest holdings, the data shows.
Ms Maurer is also sticking with another group of companies that have performed strongly recently and are seen by some investors as expensive: drugmakers.
She’s holding on to stocks including CSPC Pharmaceutical Group and Sino Biopharmaceutical Ltd after boosting stakes at the end of last year. She also remains a long-term bull on Jiangsu Hengrui Medicine Co, citing the firm’s spending on research and development, which she says is the largest among all health-care companies in companies in China.
Jiangsu Hengrui, which has risen for six straight years, roughly doubled in the past year alone. It trades at 82 times earnings.
“You can’t find a lot of reasons to sell them,” Ms Maurer said. “Valuation is a problem, but some of those companies are starting to deliver stronger earnings growth compared to the last few years.”
Ms Maurer says her team added two analysts this year, bringing the total to seven. The aim is to broaden coverage of the A-share market, she said.
Ms Maurer says she’s been trying to avoid owning stocks related to trade because of the recent friction, and she’s also steering clear of companies, such as smaller Chinese developers, that will face increasing funding pressure as the country seeks to reduce leverage. She says she’s more cautious about the overall market direction, and is trying to buy stocks that are tied to domestic Chinese growth rather than the global macro environment.
“I feel there is a lot more concern about macro this year compared to last year,” Ms Maurer said. “Risk premia are certainly increasing. We just have to be vigilant, and fingers crossed you don’t get stuck in something which has falling momentum and falling earnings.”