Kerr Neilson, Platinum Asset Management boss bets on China for financial returns

Prateek ChatterjeeOctober 11, 20170 min read

Leading fund manager Platinum Asset Management’s CEO is betting big on China, in spite of recent warnings from credit rating agencies.

Kerr Neilson, the chief executive and founder of Platinum Asset Management, has four times more money invested in China than the United States as he thinks country’s debt problems would impact the economy but not “stop it dead".

Platinum has invested more than a quarter of its $23.9 billion funds under management into China-related stocks.

"China is very much like the '60s and '70s in America when it had a can-do attitude and there was a lot of money going into investments and they led the world in many industries," Neilson was quoted by The Australian Financial Review as saying.

He has ignored recent downgrades from credit rating agencies and warnings about the growing risk of a banking crisis.

The veteran fund manager's bet on China helped his flagship Platinum International Share fund return 18 per cent net of fees over the past year, compared with 11 per cent for the index.

Since its inception 22 years ago, the fund has returned 12.8 per cent annually, around double the benchmark.

Neilson explained his rationale for investing heavily in China, citing the stable macro-economic outlook, a more profitable industrial sector and an unreliable stockmarket, which often leads to companies being mispriced.

"The locals, who account for 70 per cent of the volumes, tend to be much attracted to shiny new things," he said. "They will pay huge prices for what we regard as transient growth or overpay for the growth they are buying.

“We have been bewildered by the number of quite wonderful companies which we can buy quite cheaply," he added.

Platinum is focussing on companies in more traditional sectors with cheaper offerings and reduced its exposure to internet giants such as Alibaba, Tencent and Baidu

Neilson believes there is more value to invest in companies such as gas distributor ENN, which Platinum expects will grow at more than 15 per cent over the next few years as China moves towards cleaner energy.

It has also bought into Hong Kong-listed Anta Sports, which has doubled in price over the past 18 months.

Despite the rally, Neilson said it was "not an expensive stock given its exposure to the rising spending power of the Chinese consumer".

Platinum has about $6.5 billion invested in Chinese companies, either listed on the mainland, in Hong Kong or on markets around the world such as New York, compared with $1.5 billion in US stocks.

Platinum's strategy goes against conventional stock market wisdom. The US market has a 54 per cent weighting in the MSCI, the benchmark global index, to just around 6 per cent for greater China markets.

"In terms of its economic significance, that's pitiful," he said.

Neilson justified his choice saying China makes twice as many automobiles as the US and eight times as much steel and also leads the world in science, technology, engineering and mathematics graduates, with 4.7 million last year. That compared to 2.6 million for India and just over half a million each for the US and Russia.

He is also confident in the country's macro-economic outlook, a confidence that many others don't share.

In September, Standard & Poor's followed the two other major ratings agencies in downgrading China's sovereign debt, citing a sustained period of credit growth, which had increased "financial and economic risks" on the mainland.

Prateek Chatterjee

Hedge Fund
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