PM Corner: In conversation with Rebecca Jiang
Rebecca Jiang, Portfolio Manager and member of the Greater China Team, discusses navigating the COVID pandemic as an investor, some of the challenges in China and her most influential early-career lessons.
Many of the growth securities trends—e-commerce, cloud data and software—became magnified during the pandemic.
How would you summarize your investing philosophy?
Jiang: It’s very straightforward. We strive to buy good businesses, managed by people we trust, that are trading at reasonable prices. Those are the three key pillars of our investment framework: strong durations and economics, sound governance and attractive valuations.
What portfolio adjustments did you make to help navigate last year’s volatility and this year’s global reopenings?
Jiang: In many ways, we entered 2020 with a very COVID-ready portfolio as a natural outcome of our process. We didn’t forecast the pandemic. But we are growth investors and owned a lot of secular growth names.
Many of the growth securities trends became magnified during the pandemic. Digitization is a prime example, in terms of consumer behaviors and corporate activities. That played out in many of our portfolio’s long-term holdings, businesses involved in areas such as e-commerce, cloud data and software as a service. Healthcare-related spending and services is another example—things like medical equipment, testing services and clinical research organizations, which all benefited from increased demand.
After China had COVID under control, it experienced strong economic recovery, and we’ve added more macro-sensitive growth businesses, such as traveling and leisure services, hardware technology, cyclical industrials and some interest-rate-sensitive financials.
What concerns you most as a portfolio manager today, and what makes you feel most optimistic?
Jiang: I’m concerned about the amount of liquidity that has been injected by central banks globally. It’s been happening since the global financial crisis, but the current magnitude is unprecedented. I’m also concerned about asset-price inflation and the continuous widening income gap. Ultimately, we could see heavier government involvement in economic cycles and possibly more aggressive wealth redistribution measures around the world.
China stands out, from this perspective: It didn’t suffer as large a negative impact from COVID. Thus, its policy and stimulus responses were more restrained and it still has reasonable room for normal monetary and fiscal policy.
The government also has taken preemptive measures against hyperinflation and asset-price bubbles, which should be a positive for the long-term health of its equity market.
Quite a few strong companies have emerged from a period of chaotic competition, and the survivors are capable, globally competitive businesses.
What are U.S. investors’ biggest concerns about investing in China, and how would you combat these hesitations?
Jiang: A big concern is about government regulation and intervention, both in the economy and financial markets. The latest examples are the recent regulations on big technology companies. There are two key points to keep in mind here:
First, the Chinese government has always played an important role in the country’s capital allocation, both through the financial system, which is mostly controlled by state-owned banks, and through industrial policies that directly influence capital allocation into certain industries.
Second, the government’s purpose, in my view, is mostly to ensure a reasonable amount of healthy competition. That’s why it launched the Anti-Monopoly Law and the series of regulations based on it. They want to ensure market fairness, and also social fairness. The government has been very focused on protecting the interests of the lower-income class.
As for how navigate these risks, I think the best way is through strong research and good stock picking.
How do you maneuverer and find opportunity in this unique investing landscape, given the government’s strong presence and influence?
Jiang: We focus on what we are good at—analyzing companies from a bottom-up, fundamental perspective. It’s important to really understand the companies you are investing in. These types of policy measures can have very different impacts on different companies. Investors outside of China tend to generalize these actions, and the market might not distinguish potential differences clearly enough, which can create buying opportunities for us.
Additionally, some regulations offer investment opportunities. I mentioned earlier how the government can influence capital allocation through its industrial policies. It’s questionable whether these policies have produced the best return on capital for the whole society. Nevertheless, they have helped accelerate the development of leading companies in those categories.
Electric vehicles are a good example. China has a clear ambition to push the electrification of cars and has done so through subsidy policies, etc. This has helped develop one of the most comprehensive electric vehicle battery supply chains globally. Quite a few strong companies have emerged from a period of chaotic competition, and the survivors are capable, globally competitive businesses.
What motivates you?
Jiang: I love working with incredible people and having the mental challenges and rewards that can come with knowing you are making good investment calls.
Seeing the positive changes you can have on the real world as part of the financial industry is also a great motivator. Consider the biotech industry in China, which has rapidly developed in the last five years. We’ve participated in many of these companies’ IPOs, and it’s exciting to see the capital they raise help expand and accelerate the development of useful treatments, many of which have really changed people’s lives.
Can you share a career lesson that had a strong influence on you, and do you have any advice for those hoping to become a portfolio manager?
Jiang: A key lesson I learned from my first manager is that investing is more straightforward than most people think. It’s often about common sense. As a research analyst, I spent a lot of time trying to build a perfect model. My boss often reminded me that the essence of investing isn’t about having the perfect forecast for a company for the next quarter. It’s about understanding the nature of its business.
In terms of advice, try to always do the right thing, and understand yourself and your strengths and weaknesses. Know what you’re good at and what you’re not so good at, so that you can try to overcome your weaknesses when it comes to investing.