Schroder Thomas Wilson, Head Of Global Emerging Market Equity: Focus On Consumption And China'S Sustainable Development

During the London time of from November 14 to 15, 2019, the international Asset Management Co Schroder investment group held the 2019 global media conference.

At the meeting, Peter Harrison, chief executive of Schroder investment group, emphasized that the Chinese market will be a key area for's strategic growth. In fact, in the previous year's Schroder global media conference, Hao Ruicheng put forward this view.

Over the past year, Schroder has been taking frequent moves in the Chinese market. In May of this year, Schroder announced the expansion of its office in Shanghai to match the rapid development of its business in China. At the same time, it launched three new private equity funds such as "Schroder China Equity preferred private equity fund".

Since then, Schroder has announced the launch of two new domestic multi asset private funds: "Schroder China multi dynamic configuration 1 FOF private equity investment fund" and "Schroder China multi income one FOF private equity investment fund". Since the launch of the first private placement fund in 2018, Schroder has invested 6 private equity funds in the Chinese market.

Obviously, unlike previous wait-and-see attitudes, foreign institutions are participating in the Chinese market with "acceleration" under the stimulation of various opening measures in China's financial market.

What is worth asking is, behind the acceleration of the layout of the Chinese market, if only from the micro level of stock investment, is foreign capital really optimistic about A shares?

In this regard, the twenty-first Century economic report reporter (hereinafter referred to as "twenty-first Century") in London, London, Schroder global emerging market equity supervisor Thomas Wilson made an exclusive interview, hoping to present an overseas fund manager in the eyes of A shares opportunities and risks.

Schroder Thomas Wilson, head of global emerging market equity. Data map

The possibility of depreciation of the US dollar

Twenty-first Century: the US dollar trend is closely related to the emerging market performance. Please talk about the US dollar trend.

Thomas Wilson: from a long-term perspective, we tend to think that the possibility of depreciation of the US dollar exists, but the time of depreciation is uncertain, which depends to a certain extent on the economic performance of the United States relative to other countries in the world.

If the dollar really starts to weaken, it will certainly help the emerging markets. Now the Federal Reserve has temporarily suspended monetary easing, but we expect that the Federal Reserve will have two interest rates cut next year, but the rate of interest reduction may be less than we expected, because from an economic point of view, the situation in the United States is better than that in other parts of the world, and they are more elastic. Therefore, even if the US dollar is expensive at present, it may be maintained in the short term.

Twenty-first Century: in August this year, the US two-year and 10 year treasury bond yield curve took the first upside down in twelve years. Some people worry that the US economy may fall into recession next year. What do you think?

Thomas Wilson: we don't think the US economy will fall into recession, and the US economy is expected to slow down. Globally, trade is very weak and manufacturing is declining, but the share of US manufacturing in GDP is relatively low. Unlike Germany's manufacturing power, it is obviously affected by the weakening of the trade environment. Comparatively speaking, the share of consumption and services in the United States is very high in GDP, which is relatively stable.

Large deployment of China's consumer stocks

Twenty-first Century: what is your overall view of China's stock market?

ThomasWilson: our attitude towards China's stock market is neutral. We have been looking for stocks that can be invested for a long time in the Chinese market. As at the end of the three quarter of this year, China accounted for the highest proportion in our emerging market portfolio.

Every market has good companies and some less good companies. As active investors, we are looking for good companies that have attractive valuations and then buy them, which is the same in any market.

Twenty-first Century: in your portfolio, what is the stock market in China?

ThomasWilson: at present, Chinese stocks, including A shares and H-shares, are mostly consumer stocks. The reason why we pay more attention to the consumption field is that we believe that the orientation of China's economic development is more inclined towards consumption growth. Although China may have experienced a period of weakness in the short and medium term, we are very confident of China's sustained growth and China will continue to become richer. Therefore, we hope to grasp the investment opportunities brought about by the consumption field with structural growth opportunities.

Twenty-first Century: what are the important factors you are concerned about the Chinese market?

ThomasWilson: on the one hand, the problem of China's economic growth. China's economic growth is moving to a relatively low level. China's leverage ratio is at a relatively high level, especially in the past ten years, which has made the banking system more vulnerable.

But we also see that China is trying to solve the problem of shadow credit expansion by restricting regulatory arbitrage. This is a very positive move and necessary action. China's financial system does have some vulnerabilities to repair, but in the long run, China's financing structure will change and is changing.

At present, the proportion of real estate investment in China's gross domestic product is still very high, but as mentioned earlier, China's investment driven growth is changing towards consumption driven growth, and China's growth towards a more sustainable growth rate will be welcomed. We expect that China will continue to implement the stimulus plan, but it may remain moderate.

Another concern is the strategic competition between China and the United States. Trade tensions are both signs of western strategic competition and signs of long-term stagnation, both of which are driving factors. We expect a potential downgrade in Sino US trade disputes, but the possibility and degree of resolution are uncertain.

The fundamental problem of Sino US strategic competition continues to exist, which will have a long-term impact on money, growth, inflation, supply chain efficiency, corporate returns and capital flows.

Twenty-first Century: as China's financial environment is becoming more open, a large number of foreign investment institutions have entered China, and foreign capital has continued to flow into A shares this year. Do you think this trend will continue?

Thomas Wilson: whether foreign capital will continue to flow into A shares will ultimately depend on China's economic situation.

The weight of China's A shares in the MSCI index will increase from 5% to 20%, which we welcome very much. The Chinese market is an interesting market. We hope to find Alfa in this market and hope to make money for our customers in the Asian market. However, whether people will continue to allocate funds to the Chinese stock market depends on whether they have found interesting investment opportunities in the market.

For passive investors, the A share market will be increased in the international index, which will naturally introduce passive funds. But for a positive investor like us, we need to compare other investment opportunities when we look at the A share market. Nevertheless, the greater the weight of A shares in benchmarks, the more we will need to consider how to manage risks based on benchmarks. Therefore, the larger the market scale, the more likely people will be concerned about the A share market.

Optimistic about Russia and Brazil stock market

Twenty-first Century: can you talk about your overall view of the future trend of the emerging stock market?

Thomas Wilson: emerging markets are a diverse world with many unique driving forces. We believe that policy easing in the Fed and emerging markets will have a lagging effect on emerging markets. However, emerging markets, especially the frontier market, usually face greater political, legal, counterparty and operational risks.

For a specific company, stock prices fluctuate every day, depending on many factors, including economic, industry or company news, which may have an impact on the company's stock price. We believe that investment in small companies may not be as mobile as investment in large companies.

From the perspective of fund, we always adhere to the investment standard of "high quality and high growth". We believe that the key to making money in emerging stock markets is to stay motivated and stay active.

Twenty-first Century: from different regions, what emerging stock markets do you prefer?

Thomas Wilson: for now, we are more optimistic about the stock market in Russia and Brazil. Russia is one of our main super matching countries. The Russian stock market is a value oriented market. From the perspective of dividend yield, it is a relatively profitable market.

Brazil is another major market for our holdings. Brazil has been in serious economic recession and has not really recovered. But now they have successfully completed the legislation of pension fund, which is very important for solving the medium-term fiscal sustainability of Brazil. Moreover, Brazil's economic cycle is relatively early, which means that their monetary policy can remain relaxed for some time. We believe that in 2020, Brazil's economy should recover and the market will have a positive response.

In contrast to the increase, we have reduced more shares in the India market. Because we think the overall valuation of India stock is relatively expensive.