Industries in China With Strong Profits to Further Increase, Wellington Management CEO Says
Zhou Ailin
DATE:  Jun 07 2024
/ SOURCE:  Yicai
Industries in China With Strong Profits to Further Increase, Wellington Management CEO Says Industries in China With Strong Profits to Further Increase, Wellington Management CEO Says

(Yicai) June 7 -- The rebound in China's onshore and offshore stock markets this year is still a short-term tactical one, while in the medium to long term, the industries that will generate strong earnings for the Chinese economy will likely further increase, according to the chief executive of US asset manager Wellington Management.

Jean Hynes told Yicai that for portfolio managers such as herself, earnings are always the golden rule that boosts stock prices, and they are not always closely related to gross domestic product or the earnings of certain industries. The real estate market dragged down the earnings recovery, but China's consumption and exports show signs of recovery, she added.

Since reaching a low point in late January, the MSCI China Index, a gauge of large and mid-cap shares of Chinese companies, increased by more than 30 percent at its peak, outperforming most developed and emerging stock markets. Hedge funds and quantitative investors have increased their holdings significantly, but some long-term overseas funds still take a wait-and-see approach.

China has strong competitive advantages in manufacturing industries such as electric vehicles and new energy, Hynes noted. It will not only be about gaining market share in the future, but it will be crucial for investors to know when profits will recover and grow in those sectors.

In the next stage, changes in the global macro environment are crucial to Chinese and overseas assets, according to Hynes. Most analysts at Wellington expect the US Federal Reserve to lower rates by the end of this year, which leads to optimism about fixed income, she added.

The 2022 and 2023 markets were waiting for the interest rates to go up again, and then people would not want to be on fixed income, Hynes said. However, because of where we are in the macro environment, small- and mid-cap companies face pressure regarding funding costs when borrowing at 8 to 9 percent, she added, noting that as the economy is likely to slow down and interest rates probably will not spike up again, fixed income is a real opportunity.

Wellington still holds positive views regarding the US stock market, where profits and the economy are resilient, with the artificial intelligence theme likely continue to lift it, Hynes pointed out. Despite the high valuations of the magnificent seven stocks -- Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta Platforms -- their earnings are still quite satisfying, she said, but noted that their valuations have fallen in recent months, despite their strong price growth.

In addition to the AI concept, the "miracle weight-loss drug" was another hot theme in the market last year, Hynes said. As a portfolio manager focusing on the healthcare sector for decades, the market will be substantial, but it is still in the early stages, she added.

If people's weight is cut by 15 to 20 percent, it will dramatically change physical conditions and likely reduce the number of heart attacks, hip and knee surgeries, and cancer diagnoses, according to Hynes. It will bend the cost curve of health care in the long term, she noted.

Boston-based Wellington is an investment advisor to over 2,400 clients in more than 60 markets, with over USD 1.2 trillion of assets under management. Since 2007, it has provided investment solutions to institutional clients in the Chinese Mainland, including insurers, asset managers, and private banks.

In 2022, Wellington increased its layout in China, establishing Wellington Global Private Fund Management Shanghai in January and launching its first qualified domestic limited partnership fund at the end of that year.

Editor: Martin Kadiev

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Keywords:   Wellington Management,Jean M. Hynes