What influence does the stage of technological development of Asian markets have on investments?
Tenpay and Alipay have been able to capture market share because banks have been slow to adapt to the technological development. They have first mover advantage and have created a duopoly. The two companies are turning into very very large companies.
So what does it mean from the point of view of a Western bank?
China is trying to attract foreign investment in financial services. But just because you allow multinationals such as UBS into the country, doesn’t mean that you are able to attract consumers to that brand.
«Exchange traded funds and passive investments don't provide good value at the moment»
Alipay is on virtually all devices of Chinese consumers. What would prompt them to all of a sudden choose a service by say UBS?
If you look at Asia as a whole, which market has the most nuggets to be found by investors?
China. But I don’t think that an exchange traded fund or passive investment will provide good value at the moment. If you buy a Chinese index, about 30 percent goes into two companies – Alibaba and Tencent.
And why is this a problem?
Alibaba and Tencent are trading at very high multiples and are overcrowded in terms of ownership. The margin of safety therefore has decreased and the target prices reached. So we expect some kind of pull-back.
«But by contrast, not all state-owned enterprises are badly run»
Therefore, active investing makes a lot of sense in the country. But do be able to do so, you need a lot of due diligence on the companies.
