Interview #86 : Michael Fritzell (Asian Century Stocks)
Finding value in Asia
For this issue we have the pleasure of interviewing Michael Fritzell from Asian Century Stocks.
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Read the last two editions with Kevin Durkin (Ballina Capital) and Michael Wright (Kehlet Capital) ➡️
Hi Michael, thanks so much for taking the time out to do this interview.
You have become the go-to person for all things related to investing in Asia’s public equity markets, so it will be nice to hear your current views on this part of the world.
Happy to participate, and thanks for reaching out!
The Hang Seng Index has been in a brutal bear market and is now trading at a P/E of 8.4x, a similar level as seen in the Great Financial Crisis of 2008.
What do you think will reverse this trend?
There’s incredible value in Hong Kong equities right now. I don’t know what will reverse the trend, but investor sentiment reminds me of what I’ve seen in prior bottoms.
At market bottoms, investors often say there’s no catalyst – no sign of a turnaround. That’s fair enough, but investors are typically slow to catch on when a catalyst does materialize.
For example, in August 2015, the Renminbi experienced a mini devaluation, causing investors to reduce their Chinese equity exposure. Shortly after that, the market bottomed and staged a two-year rally.
The catalyst back then was an acceleration in credit growth. But few people paid attention to the improvement in market fundamentals.
We’re seeing something similar play out today. In the past two months, we’ve seen an improvement in interbank liquidity, which could set the stage for greater credit creation in 2024.
The January 2024 print for China’s total social financing – a broad money supply metric – was strong at +9.5% year-on-year, though be aware of Chinese New Year seasonality.
In any case, the time to become really bullish is if and when construction activity rebounds. Residential new starts are down 60% since 2021 – a big problem for an economy reliant on construction.
I can’t predict what’s going to happen to the broad market. All I know is that governments tend to print their way out of problems and that equities benefit from such money printing. And I can’t imagine sentiment getting much worse than it is right now.
Hong Kong at the moment is a contrarian stock pickers paradise. What type of companies are you focusing on, and what are you completely ignoring?
Hong Kong is a paradise for stock pickers right now. There’s no other market like it, at least not in this part of the world.