Ellerston Capital’s Manning Reduced Cash and Added to China and Tech
October 2019 | BY Mary Manning
Mary Manning, Ellerston Asia and India Portfolio Manager, recently spoke on Bloomberg Markets about her trading strategy on the optimism surrounding the U.S.-China trade talks and where she’s finding opportunity.
Q: You heard from Liu He some positive news slightly, not unbridled optimism– What do I do with that information?
A: That is incremental positive; we are working on the assumption of a potential partial deal in the middle of November at APEC. The way I positioned my portfolio is, about a month ago I started reducing cash and adding to China. When there is additional confirmation that this is going to happen, then I add a little bit more. I have gone from 20% cash to around 5% cash now, so that’s quite a significant change. What we are hoping for from the deal is certainly not a deal that is going to fix everything. But if they can just agree on agriculture, not putting it in the December tariffs and potentially rolling back the tariffs that went in in September, I think that will be a win and market will take that positively.
Q: What have you been adding specifically?
A: I have been adding to China and I have been adding to Tech. For the past two years when there was escalation in the trade war, these were obviously risky places to be. China because a lot of foreign investors in particular took the view this market is too risky and if I don’t have to be there, then they are not necessarily going to be invested in China. And Tech because Huawei is embroiled in the whole tech trade war issue and there are a lot Huawei supply chain companies in the technology sector in Asia. I have added to large cap China, like Alibaba and JD, and I have also added to the tech sector, particularly TSMC after it had really good results a few weeks ago.
Q: You are also favouring financials and we talked to you last about this as well. Since then we’ve had some earnings out of some of the big lenders here in China towards the end of the day on Friday. What is your assessment of where China’s banks stand? What are some of your favourite picks?
A: We did have some earnings and they were pretty stable; there was nothing fantastic, nothing terrible so I think it is sort of status quo going forward for the Chinese banks. The reason that I own the Chinese banks is because of valuation. For example ICBC and CCB (China Construction Bank) which are two of the stocks I own, their PE is about the same as their dividend yield. It’s both around 5-6%. I was a financial analyst for many years before I was a Portfolio Manager and when you see a financial where the PE is the same as the dividend yield, that’s a very strong buy signal. My top pick in Chinese banks is China Merchants Bank. As you probably know, it is different from all the state owned banks. It has much higher EPS growth and a much higher ROE than the other banks. It is traded at a premium but I think it’s a much better managed bank and it will outperform in the long term.
You can hear Mary’s Bloomberg radio interview here: Next Two Weeks Important For Markets (Radio)