Podcast Summary
In this podcast, Harburg, managing partner at MSA Capital and portfolio manager at Core Values Alpha, discusses the current state of the Chinese economy, the property market, and the investment opportunities in China. He also shares his views on the Chinese banking system, the impact of government regulations, and the potential for growth in Chinese equities.
Key Takeaways
Chinese Property Market and Banking System
- Property Market Concerns: The Chinese property market has been a major concern due to overbuilding and dependence on real estate, leading to a negative cycle. However, the Chinese government has taken measures to stabilize the market.
- Banking System Stability: The Chinese banking system is more conservative and strict compared to the West, resulting in fewer loans given to individuals and more stringent recourse measures. This has contributed to the system’s stability.
Chinese Economy and GDP Growth
- Economic Challenges: The decline in the property market is seen as a secular trend that will impact China’s economic growth. However, other sectors are expected to replace it as important growth drivers.
- GDP Growth: Chinese GDP growth bottomed in 2022 and has been hovering slightly above 5% since then, despite experiencing deflation.
Investment Opportunities in Chinese Equities
- Undervalued Stocks: Negative news surrounding the Chinese real estate market has created downward pressure on Chinese equities pricing, leading to undervalued stocks.
- Investment Strategy: Harberg is not a China bull across the board, but selectively picks companies that he believes are primed for significant growth. He focuses on specific sectors such as domestic brands, fully integrated supply chains, and the China going global narrative.
Chinese Manufacturing and Global Market Position
- Quality and Affordability: Harberg emphasizes the quality and affordability of Chinese production, citing examples like BYD’s electric vehicle priced at $115,000 and the growing market share of Chinese cars in the Middle East.
- Global Market Position: Despite the inevitability of tariffs against China, Harberg notes that the tariffs have already been priced into many companies. He believes that Chinese manufacturers are so competitive that they can succeed despite the sanctions.
Private Markets in China
- Challenging State: The state of private markets in China is currently challenging, with many Western investors pulling their money out for non-fundamental reasons. This presents interesting opportunities for buying Chinese private equities at discounted valuations.
- Government Measures: The Chinese government may implement measures to stimulate consumer lending and stabilize banks and real estate developers. The focus will be on stimulating local consumption to absorb overcapacity in production.
Sentiment Analysis
- Bullish: Harberg expresses a bullish sentiment towards Chinese equities, citing the undervalued nature of stocks and the potential for growth. He also highlights the quality and affordability of Chinese production, suggesting that Chinese manufacturers can succeed despite the sanctions.
- Bearish: There is a bearish sentiment towards the Chinese property market due to overbuilding and dependence on real estate. Harberg also expresses skepticism about India as a market, citing its opacity, corruption, inefficiency, and concentration of wealth among a few conglomerates and families.
- Neutral: Harberg maintains a neutral stance on the Chinese economy, acknowledging the challenges but also highlighting the measures taken by the Chinese government to stabilize the economy and attract foreign capital. He also mentions the potential for consumer spending to be unlocked in China.
