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15 Jan 24 Insight Global Equities Ox Capital Management

Why Bother Investing in China?

The investment philosophy of Ox Capital is to buy champion businesses of the future when valuations are depressed. Typically, reason for the negativity is obvious. Our job, as long-term investors, is to look past short-term disruptions, and determine if the businesses possess strong economic moat which enable them to become champion companies in the future.

From this perspective, Chinese equities are exciting for us. After a three-year bear market, Chinese equites are well-and-truly out of favour. While the Chinese economy is facing multiple headwinds, quality businesses will continue to grow and become champion businesses in coming years. Right now, it is an opportunity to invest and take advantage of the very attractive valuations.

Economic headwinds are well-understood. The economy is reducing its reliance on the property sector for growth. It also has to cope with heightened geopolitical pressure and has spent the last few years purposefully reforming the economy.
All these negative factors are reversing to a certain extent for the better. However, it will take time for these measures to take hold and for the various sectors of the economy to heal. We believe that a muddling-through outlook is unfolding, with a generally stable and improving growth environment.

In the meantime, we are focussed on strong businesses with solid positions within the country that are still enjoying long term growth. Businesses like Tencent, Tencent Music or Kuaishou, all of which have an abundance of levers to pull by virtue of its dominance in the internet to maintain decent growth rates even in a slower economy.