Morningstar - Q1 2022 - 80

Ten Questions
Winnie Chwang of Matthews Asia
tackles China's vast market.
Laura Lallos, managing editor of Morningstar
magazine, interviewed Chwang in December.
1. How has investing in China changed over
your career?
The market has expanded from 2,000 to more
than 5,000 companies, and the types of companies
have changed as China shifts to a knowledgebased
economy. These are exciting companies
with once-in-a-lifetime growth opportunities.
2. Do you expect China's growth path to slow?
China cannot grow sustainably at the speeds it
used to, but the quality of growth is improving. We
expect less cyclical and more secular growth,
as more innovative sectors drive China's economy.
3. Is China's push for " common prosperity " good
for business?
Common prosperity will help grow and develop
China's next generation of middle-class consumers.
Winnie Chwang comanages Matthews
China MICFX and Matthews Pacific
Tiger MIPTX, both of which have Morningstar
Analyst Ratings of Gold, as well as
Matthews China Small Companies MCSMX.
She joined Matthews Asia in 2004. Chwang
earned an MBA from the Haas School
of Business, University of California, Berkeley,
and received her B.A. in economics
with a minor in business administration
from Berkeley. She is fluent in Mandarin and
conversational in Cantonese.
Photography by David Lees.
4. How do you manage regulatory risk?
Some of our companies, such as Alibaba 09988:HK,
have been affected, but I trust these large Internet
platform companies will be able to withstand
regulatory changes. We believe that these
regulations are part and parcel of a longer-term
effort to develop industries. Managing that risk
means being aware of the sectors that the
Chinese government wants to support, including
renewables and semiconductor technology.
5. Is China handling the Evergrande crisis well?
It should have been dealt with a long time ago,
as it was known that Evergrande's balance
sheet was inflated. With the government stepping
in, I think it will be managed effectively. The
tightening liquidity environment may lead to more
developers facing liquidity or solvency risks,
but I don't expect the government to step in like
they did for Evergrande because they want to see
healthy industry consolidation.
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Morningstar Q1 2022
6. Is escalation around Taiwan a risk?
This is still a very low-risk probability. For one thing,
Taiwan is home to advanced chip manufacturing.
Any escalation might truncate China's access to
high-end chips, which would backtrack the
technology advancements the country has worked
so hard to attain.
7. What is the best way to invest in Chinese companies?
We invest from the bottom up-first identifying
the best businesses across different exchanges,
then considering criteria such as valuations.
Currently, Hong Kong is more attractively valued,
and more mainland China participation in the
Hong Kong market might help narrow the
discounts. China's A-share market will still be an
important part of our universe given its depth
and breadth of opportunities.
8. Where are you finding lesser-known opportunities?
Over the past two years, a technology selfsufficiency
drive resulted in greater willingness
to use locally made goods, which benefited
smaller local tech companies. This drive is now
extending into areas such as automation,
medical devices, and specialty chemicals, which
creates opportunities in the small-cap space.
9. What's the best advice you've received?
To invest across all sectors. It's tough, given
the size of the Chinese market, but you
often have to look where no one else is looking
to find gems. I view every day as a workout:
If I haven't put in the effort to feel a bit
uncomfortable, I probably haven't succeeded
in learning more that day.
10. What is your favorite way to spend a day off?
I enjoy cleaning and refreshing my home when
I have a day off. This is somewhat therapeutic
and helps me think better. I usually then
end the day with prepping a home-cooked meal
and inviting friends over for dinner.

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Morningstar - Q1 2022

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