Sam Lecornu is co-founder and chief investment officer of Hong Kong-based Stonehorn Global Partners.
Would a West-Sino economic decoupling impact the growth outlook for Alibaba or Tencent?
As it stands right now it appears the impact would be limited. This is because the main growth drivers for the big tech names come from their large domestic market.
It is possible that the US could come up with further sanctions that could impact the domestic development of the big tech. But the advantages of being a big tech name in China is that you will enjoy all the state support you require to develop and maintain your position so long as it is strategic for the Chinese government to do so.
Will the Buffett-backed EV-maker BYD see a tailwind from recovery stimulus in China?
Yes. As the Chinese government will not be able to stimulate all aspects of the economy, they have to focus their resources on strategic industries.
For example, the Chinese government may not be stimulating the entire auto industry but focus their resources on the alternative vehicle segment. Electric vehicles and renewables industries are definitely strategic priorities which will see a tailwind from recovery stimulus.
China would like to maintain their lead in these industries. BYD makes batteries, solar panels, battery-powered bikes and vehicles. But what happens inside the business is more revealing than the products that emerge from it.
With COVID getting a foothold in Wuhan in late January, BYD began production of masks and disinfectant gels. A special taskforce was appointed, including 3,000 engineers, that in two weeks completed a project that would ordinarily take the company two months.
A production line that delivers high-quality face masks requires about 1,300 parts to function. BYD made 90 per cent of its own parts and within a week was producing face masks and disinfectant gels.
By mid-March, the plant was the world’s largest, producing five million masks and 300,000 bottles of disinfectant per day. In June, capacity had increased to 50 million masks a day.
What’s your top growth pick for the next five years?
Chinese millennials. China currently has about 400 million millennials, compared to 80 million in the United States. Ninety percent of Chinese millennials have a smartphone.
The growth in e-commerce, marketplace platforms, cashless payments, online names, fintech, online food delivery, internet banking and online education are enormous total addressable markets growing at exponential rates.
Do you have a sense of whether tensions between Beijing and Canberra is impacting business relations or country-of-origin preferences among consumers?
It is indeed impacting business relations particularly on Australian exports to China. For imports, the reality however is that China constitutes a large portion of the imported merchandise that would be difficult to source competitive alternatives in a similar scale.
Chinese millennials on the other hand likely don’t even know the name of our Prime Minister and certainly wouldn’t think of the Australian government nor the current tensions when they click to buy a product online.
How has Australians’ willingness to invest in Hong Kong or mainland listed companies changed?
Australians are sceptical; don’t believe the Chinese figures and many are quick to conclude Chinese companies are ‘dodgy’.
A degree of scepticism is healthy; I myself employ the approach to verify the information, cross-check and do face-to-face meetings to find the truth—I love seeing the whites of the eyes of management.
For over a decade I haven’t had a major corporate governance event in an investment in Asia because I used the Australian way: do your homework to be sure. That’s why we have been so successful and our clients label us their eyes and ears on the ground in Asia.
Do you see Hong Kong holding its position as a leading finance hub that attracts ex-pats from around the world?
It largely depends what on how the Sino-US relationship develops from here. In our opinion Hong Kong will still remain an important finance hub, but will likely have more Chinese presence.
Any podcasts, reads or shows that have caught your attention recently?
I’m currently reading (re-reading) Paulo Coelho’s book The Alchemist (a 25th year anniversary edition).
It’s a classic fable story about the possibility of having a dream come true that makes life interesting.
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