Funds guru has his finger on the pulse

Investment veteran Cheah Cheng Hye tells Luo Weiteng those who fail to jump on the Chinese mainland bandwagon over the next decade will miss the boat.

Over the next 10 years, if there's only one market you've to get right, it must be the Chinese mainland.

This is the saying that has been on everyone's lips across the global asset management industry today, said Hong Kong-based fund manager Cheah Cheng Hye.

As China emerges from the economic chaos still present in much of the world, the country, riding high on its undertakings and goals of further opening-up, deregulation and reallocation of wealth, offers the biggest opportunity in at least half a century for those with the foresight in the world's asset management business to jump on the bandwagon, he said.

Cheah, a Malaysia-born journalist-turned-fund manager, co-founded Value Partners in 1993 and built it into a successful, home-grown Hong Kong fund house - the first asset management company listed in the special administrative region and one of Asia's largest asset managers, with assets under management of $13.2 billion as of April and a focus on the mainland and Hong Kong.

Despite mounting concerns over "bubble economics", with central-bank money printing distorting prices and pushing up markets, Cheah said he believes the mainland "has been more careful and prudent, without too much debt to take excessive measures and managing to achieve a quite good degree of social and economic stability".

Chinese stocks now take on the sheen of a safe haven asset against volatility, he said, with the renminbi as one of the world's best-performing currencies. Cheah, dubbed Hong Kong's "market goldfinger", remains bullish on the nation's stock market, highlighting healthcare and domestic consumption sectors as particular areas of interest.

"The value of Chinese stocks still has to be discovered by foreign investors," he said. Today, foreign ownership of the nation's stock market hovers at merely 5 percent, which pales in comparison to the usual level of 25 percent seen in other Asian countries, noted Cheah, adding that China will probably catch up over the next decade.

There's also latent demand from domestic investors. The country's public ownership of stocks is less than 20 percent, which is dwarfed by the sheer size of the country's savings rate and a middle-class population of more than 400 million people - a figure projected to double by 2035. Besides parking the money in real estate and banking accounts, the Chinese public yearns for a healthy and well-developed stock market as an investment channel, said Cheah.

Hong Kong's role

Despite the potentially huge opportunities up for grabs on the mainland, Hong Kong only recently returned to growth after a record-long 18-month recession. Cheah said Hong Kong is still struggling to "find a way out from at least three to four generations of problems inherited from the past, including notoriously high housing prices and an education system that needs an overhaul".

With the SAR on the cusp of great change, what remains unchanged is its impeccable strength as a world-renowned financial center and its long-cherished role as a super-connector between the vast mainland market and the world.

Cheah has high hopes for the upcoming Wealth Management Connect, which allows high-net-worth individuals across the Guangdong-Hong Kong-Macao Greater Bay Area to invest in cross-border products.

Value Partners is now geared up with several funds. At the age of 67, Cheah has much patience, emphasizing it's just the beginning. The Wealth Management Connect itself, slated to kick off early this month, may start on a small scale and time its takeoff just like the Stock Connect, which now contributes to as much as 15 percent of Hong Kong's stock market turnover.

Cheah's career - a rags-to-riches story in the fund management industry - has seen him amply rewarded for his foresight and business acumen. One of his memorable successes was an investment in stocks of Shenzhen-based battery maker BYD Co 15 years ago, even before Warren Buffett's Berkshire Hathaway ponied up $230 million for a roughly 10 percent stake in the company. At that time, the then little known mainland company, founded in 1995 and listed in Hong Kong in 2002, had charted the course of manufacturing cars, inviting skepticism.

During a visit to BYD's factory in Shenzhen, Cheah met with founder Wang Chuanfu, who showed him around the factory to help him figure out how BYD's car-making ambition could be taken seriously.

The visit convinced Cheah that his bet on BYD, which later rose to become one of the world's largest electric-vehicle manufacturers in the span of a decade, would certainly pay off. It also made him take a good hard look at the reputation that China has earned for itself as the "world's factory". For certain types of products that require skilled and disciplined labor, he's a firm believer that the country, equipped with a constellation of young, skilled and passionate engineers, has a strong competitive advantage.

The investment guru also learned from failures. One of his most unforgettable bets that went awry was on Oasis Hong Kong - a low-cost carrier that began operations in 2006 and positioned itself as a rival to Cathay Pacific by offering high-quality services at much lower prices. Within three months, Cheah saw almost half of his company's HK$30 million investment in the newly-formed airline evaporate. After 18 months, the airline folded, citing a lack of funding.

Learning from mistakes

The experience made Cheah steer clear of any future investment in the airline industry, in which he's frank about his lack of expert knowledge. "Now, I only stick to a few areas that I know best."

For buy-side investors like Cheah who every day make decisions involving billions of US dollars, learning the art of decision-making and from mistakes should be a life-long process and an ever-lasting theme in their careers. Over the past three decades, one-third of his decisions proved to wrong. Another one-third were correct and the remainder were"neutral".

"The key to survival is to identify the mistake early and correct it fast, rather than simply avoid any mistake," he said.

"Unlike on the sell side, where people have to tell a compelling story to pitch their products and convince investors to buy them, on the buy side, however, what you're expected to do is to make the right decisions."

There's no shortage of people who avoid making decisions in real life as they cannot afford to make any mistake or take a risk in their careers. Cheah said the elements required of a good decision-maker include a strong character, great courage, solid research and true love for the profession. "You make big decisions and hope for the best."

The real passion for the profession, in particular, stands out as one of the attributes that takes people further in their investment careers. Some may think of landing a plum job and making a big fortune in investment. But the long hours put in to learning from mistakes as well as the high standards required of their work will eventually make it nothing but an extravagant hope, he said.

Without the interest and the passion, they can hardly expect to last the journey, said Cheah.